Monex Europe : Dollar drops as Pelosi’s fiscal deadline elapses

GBP

Sterling, like the rest of the G10, pounced upon broad USD weakness to sit in the green today, but a collapse in Brexit negotiations will likely cap the extent to which the pound can rally on the back of the dollar move. After talks between Barnier and Frost concluded yesterday, Barnier stated that both sides should be making use of the little time left, while reiterating that the EU's door remains open. Additionally, sources from Brussels state that the EU is confident with Westminster's posturing, and remain confident that both sides can formalise a deal before the beginning of November. The political heat in Westminster remains on Boris Johnson's latest decisions today, but won't be Brexit focused. Following the public spat between the government and Manchester's local authorities and the government's unilateral imposition of tier 3 lockdown measures in the area, along with a financial penalty for doing so, Johnson will face an uncomfortable Prime Minister Questions today at 12:00 BST. Opposition leader Keir Starmer has been out of focus this week, allowing Manchester's Mayor Andy Burnham to inflict all of the damage, but is likely to step up today to condemn the government's handling of the situation and the second wave as a whole. Questions remain over if the whole of England will be placed under a two-week 'circuit breaker' style lockdown when schools break at the end of the month, with speculation only rising with Wales imposing such a rule as of Friday and Ireland yesterday announcing a nationwide six-week lockdown. Perhaps today's PMQs will provide markets with some guidance on future policy, but it is unlikely that such a decision will be announced so soon before the school holidays that begin at the end of the week.

EUR

Although the euro benefitted from the broad dollar weakness yesterday, its gains vs the greenback were limited compared to other G10 currencies. After safe havens CHF and JPY, the euro held the lowest spot return against the US dollar over a 1-day window. While this may stem from the eurozone's continuous struggle of containing its virus case count, it may also be a sign of the euro having adopted some safe haven appeals following this year's EU rescue deal. European Central Bank President Christine Lagarde commented on the unexpectedly early pickup of virus infections in the eurozone, and stated that policy makers are gearing up for more monetary stimulus. In the continuation of the broad dollar weakness this morning, the euro rose to a 1-month high against the dollar. The economic calendar remains centred around ECB speakers today, with ECB President Christine Lagarde and Chief Economist Philip Lane speaking at an ECBListens event at 8:30 BST, followed by a speech from the ECB's Luis de Guindos at 11:00 and 17:00 and a final speech by Philip Lane at 2:55.

USD

The dollar has fallen to fresh one-month lows this morning, after House Speaker Nancy Pelosi's deadline for stimulus talks passed without a collapse in talks, and Pelosi herself said that she was hopeful a deal could be reached this week. However, even if a deal can be struck between the White House and House Democrats this week, the Republican-controlled Senate is a different matter entirely. Senate Leader Mitch McConnell said that his chamber would take a prospective deal up, but declined to say if he would support it, while Senator and former Presidential Candidate Mitt Romney said it was 'unlikely' a large deal of the sort proposed by Democrats would make it through the Senate. US fixed income markets traded with a broadly reflationary theme, with longer-dated sovereign yields rising while the front of the curve remained steady. Yesterday's data included decent prints for monthly building permits and housing starts, with the latter beating expectations handily. Single-family permits rose by 7.%, the fifth consecutive monthly increase, reaching levels not seen since March 2007. Today's calendar is somewhat sparse; MBA mortgage applications data will be released at noon, followed at 19:00 by the Federal Reserve's Beige Book, a summary of local reports on current economic conditions based on contact with businesses, investors, economists and market experts.

CAD

As expected, USDCAD took its cues from the broad dollar move yesterday. With the greenback falling on signs that pre-election stimulus now seems unlikely, USDCAD dropped nearly half a percentage point. This allowed the loonie to drive to a one-month high this morning and on its way to the nine-month high achieved back in the beginning of September. In Ottawa, the government extended its ban on non-essential travel to the US until November 21st, while Prime Minister Trudeau warned opposition lawmakers that they would trigger an election in Canada if they approve the creation of an 'anti-corruption' committee. This comes at a time when Trudeau and former Finance Minister Bill Morneau are being investigated over the allocation of a C$900m student-grant program to WE charity. While an election isn't guaranteed, Trudeau stated that it clearly shows the Conservative party are opposed to making the minority Liberal government work. This comes at a time when Canada faces a substantial second wave with its two largest provinces facing tighter lockdown measures. Yesterday, Quebec reported 877 new cases, down from over 1,000 where it has been averaging for some time, while Ontario saw 821 new cases - the second-largest daily increase since the resurgence in mid-August. Today, the broad dollar move will remain in focus for loonie traders, along with retail sales data for August and CPI inflation data for September, both of which are released at 13:30BST/ 08:30 ET.

This information has been prepared by Monex Europe Limited, an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Europe Limited or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.