By Peter Nurse.
Investing.com – The U.S. dollar rose slightly in early European trading on Monday, with talks over the latest U.S. stimulus measures seemingly in limbo as the election approaches.
At 2:55 a.m. ET (0655 GMT), the dollar index, which tracks the dollar against a basket of six other currencies, was up 1 percent at 93.108, recovering slightly after posting its biggest drop in six weeks last Friday to a nearly three-week low of 92.997.
Elsewhere, it was down 0.1 percent at 1.1814, down 0.1 percent at 105.50, unchanged at 1.3050, and down 0.2 percent at 0.7227 for the risk-sensitive.
The dollar had been hit hard on Friday after the Trump administration proposed a new $1.8 trillion package amid hopes that a new U.S. stimulus package would be agreed upon to reduce demand for the safe haven currency.
However, the proposal was opposed by both sides, with Democrats saying it wasn’t comprehensive enough, while hard-line Republicans worried about the extent to which it would add to the country’s debt pile.
That said, this rally in the dollar, while limited, could be short-lived if Goldman Sachs (NYSE:) is to be believed. The influential investment bank said the dollar is likely to slide to 2018 lows – when it dipped below $89 – due to the rising likelihood of Joe Biden winning the U.S. election and advances in coronavirus vaccines.
“Risks are skewed towards dollar weakness, and we see the odds of the most dollar-friendly outcome – a win for Mr. Trump, coupled with a meaningful vaccine delay – as relatively low,” Goldman Sachs strategists wrote in a note on Friday.”‘ Blue Wave’ positive news on the U.S. election and vaccine schedule could send the trade-weighted dollar and DXY index back to 2018 lows.”
Elsewhere, the yuan edged lower on Monday after the People’s Bank of China said it would reduce the ratio of reserve requirements for financial institutions when carrying out some foreign exchange forward transactions, a move seen as a curb on the yuan’s strength.
The yuan hit a 17-month high on Friday and has gained more than 6 percent against the dollar since the end of May. It was trading at 6.7160 at 2:55 a.m. ET, up 0.3 percent.
In addition, it climbed 0.5 percent to 7.8977, although the Turkish central bank raised the payout rate applied to the lira’s required reserves to 7 percent from 5 percent and the lira softened.
Turkey’s central bank raised interest rates in September for the first time in two years, providing a boost to a currency that has fallen 34% since the start of the year. Forex traders are smelling weakness as Turkey has used up a lot of its foreign exchange reserves during the coronavirus pandemic and looks likely to lose further ground.
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