The dollar edged lower on Friday and was headed for a second consecutive week of losses as investors increased bets Joe Biden would win the US presidency and offer fiscal stimulus after the elections.
Several Wall Street banks forecast some kind of stimulus package no matter which candidate wins, but say a Biden presidency, if Democrats also retake control of the US Senate, would be likely to result in a bigger one. UBS Asset Management, for example, is assigning a 75 per cent probability of a Biden win.
Reuters/IPSOS polling this week put Biden, a Democrat, narrowly ahead of Republican President Donald Trump in five states - Wisconsin, Pennsylvania, Michigan, Florida and Arizona - that will play critical roles in deciding the victor.
Rising expectations of a Biden victory have had a calming effect on market volatility around the US election date and boosted appetite for currencies which have been hurt by the trade war between Washington and Beijing.
“There’s been a noticeable decline in implied volatility around the election date, which suggests that the market is getting more confident of the outcome and that it’s satisfied with the likely result,” said Marshall Gittler, head of investment research at BDSwiss Group.
The dollar eased <0.1 per cent> against a basket of currencies =USD at 93.47 and it is down 0.4 per cent for the week. It fell 0.8 per cent last week. It reached a two-month high at 94.75 in late September.
The Chinese currency was the biggest beneficiary of the rising hopes of a Biden win. The yuan posted its biggest daily rise in more than four years, though the gains were partly catching up after a long break.
A stronger-than-expected setting of the yuan’s trading band also signalled that policymakers in China don’t mind its rise. Biden’s lead in the polls is driving bets on a steadier Sino-US relationship.
The yuan CNY=CFXS was last up 1.2 per cent at 6.7112 per dollar in onshore trade and up half a per cent to 6.7024 per dollar offshore CNH=D3.
“Polls are showing that Biden is taking the lead ... it means the risks of resuming a new trade war are getting smaller, so I think this is positive for the renminbi,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.
The risk-sensitive Australian dollar AUD=D3 rose 0.2 per cent to $0.7186, putting it a fraction higher for the week, despite analysts interpreting a Tuesday central bank statement as a signal of monetary easing to come.
The euro EUR=EBS was up 0.1 per cent to $1.1776. Sterling GBP=D3 crept 0.2 per cent higher to $1.2961 and has held firm this week as prospects for a Brexit deal appeared to improve.