Dollar Edges Higher on Stimulus Uncertainty; Lira in Focus

The dollar edged higher in early European trade Thursday, as traders warily studied the ongoing negotiations in Washington over a potential new U.S. stimulus package.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 92.713, rebounding a touch after falling to its lowest level since Sept. 2 overnight.

Elsewhere, EUR/USD was down 0.1% at 1.1851, a fraction below a one-month high of $1.1865 hit on Wednesday, while USD/JPY was up 0.1% at 104.64.

The dollar had weakened Wednesday on confidence that an agreement on stimulus was close, sparking demand for riskier assets, but this optimism has dissipated Thursday amid opposition from Senate Republicans over the size of the potential aid bill.

Negotiations between House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin are set to continue on Thursday, but prospects remain dim for any substantial aid to be agreed before the Nov. 3 election, after negotiators on both sides acknowledged the possibility of a deal that only took effect after that date.

The Federal Reserve’s Beige Book suggested Wednesday that the U.S. economy expanded at a “slight to modest” pace though employment trends were sluggish. With this in mind, traders will look to the release of weekly jobless claims data later Thursday for guidance.

However, most eyes will be on the final presidential debate between President Trump and Democratic rival Joe Biden later in the day.

“Biden is leading Trump by miles in polls, while the increasing probability of a ‘Blue Wave’ outcome has been correlated with higher equities, a weaker USD and a steeper curve, but such a viewpoint is already consensus by now,” said analysts at Nordea, in a research note.

Elsewhere, GBP/USD was down 0.1% at 1.3134 after climbing to a six-week high overnight after Britain’s chief Brexit negotiator said talks with the European Union will resume on Thursday afternoon.

“The timescale for some sort of agreement has now slipped back into Mid-November, and there will doubtless be a flurry of ratifications necessary in member states before this can be passed, which will take the theater right to the closing curtain on Dec. 31,” ING analyst Robert Carnell said, in a research note.

USD/TRY was down 0.1% at 7.8032 ahead of the latest policy meeting of Turkey’s central bank later Thursday.

The central bank surprised the market last month with a 200-point hike, designed to combat double-digit inflation and a record-low lira. However, the currency has since dipped another 4% against the dollar since then.

Thus most economists expect Turkey’s central bank to keep tightening policy, raising its key interest rate by 175 basis points to 12%, according to a Reuters poll.