Dollar Edges Lower; Uncertainty Over Stimulus Plans

The dollar edged higher in early European trade Tuesday, with traders keeping a wary eye on the ongoing political discussions 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 less than 0.1% at 93.445. EUR/USD was up 0.1% at 1.1768, while USD/JPY was up 0.1% at 105.53.

The greenback has been trading in a narrow range of late, with traders watching the ongoing discussions between U.S. lawmakers over the need and size of additional stimulus with a great deal of caution.

House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin “continued to narrow their differences” in a telephone conversation on Monday, her spokesman said.

However, there remain serious doubts that the political impasse will be lifted in time for measures to be passed by the end of Pelosi’s self-imposed Tuesday deadline to reach a deal with Republicans.

U.S. housing starts for September are due later in the session, but, aside from the stimulus talks, the focus will soon move to Thursday’s second presidential debate, with many seeing this as President Donald Trump’s last chance to move the needle in the race for the White House,

Elsewhere, GBP/USD traded largely flat 1.2946, still supported as the EU appeared to extend an olive branch, saying it remains committed to intensifying Brexit-deal talks with the U.K..

“As we enter yet another crucial phase for Brexit and sterling this week, we suspect market positioning on GBP did not shift too much on the short side after the confrontational comments and threat of no-deal witnessed last week,” said analysts at ING, in a research note.

“We believe this is a market that is far from pricing in a no-deal outcome … and remain of the view that the downside risks for sterling in a no-deal scenario are still sizeable,” ING added.

Additionally, USD/CNY traded 0.1% higher at 6.6839, not far removed from the two-year low of 6.6695 it reached per dollar on Monday, the pair’s weakest level since July 2018.

On Monday, China reported that its gross domestic product grew 4.9% in July-September from a year earlier, slower than the median forecast of 5.2%, but considerably better than the growth seen in Europe or the U.S..

ING has lifted its China GDP forecast to 1.7% from 0.7% for the whole of 2020, and to 7.0% from 3.5% for 2021, citing a stronger-than-expected domestic recovery.