Dollar Steady Ahead of Presidential Debate; Sterling Strengthens

The dollar was steady in early European trade Tuesday, with traders keeping their powder dry ahead of the first U.S. presidential debate amid developments on the U.S. stimulus bill.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 94.233, after retreating from a two-month high of 94.745 reached last week.

Additionally, EUR/USD gained 0.1% to 1.1681, while USD/JPY was up 0.1% at 105.64.

Overnight, Democratic lawmakers unveiled a new $2.2 trillion coronavirus relief bill, which was described as a compromise measure. It’s true this price tag does bring the total cost nearer to the levels Republicans have said they would be prepared to accept, but the gap is still wide and trust between the two sides appears to be in short supply.

All eyes will turn later Tuesday onto the first U.S. presidential election debate between Democrat Joe Biden and Republican Donald Trump, with the vote just over a month away.

“The stakes are high and the result is far from clear in the U.S. November elections,” wrote analysts at Nordea, in a research note. “A decisive Democratic victory would probably hit the USD and support European assets, while another Trump term would be full of uncertainties.”

“We think the race is much closer than the polls imply, and even if a Biden victory is the most likely outcome, such a scenario is far from a given,” Nordea added.

Markets are also awaiting a plethora of economic data releases to gauge the health of the world’s biggest economy, including Tuesday’s consumer confidence number, but more importantly, the jobs report on Friday – the final one before the election.

Elsewhere, GBP/USD rose 0.3% to 1.2864, hitting a one-week high, following promising noises as the final round of scheduled Brexit trade discussions got underway. The Times reported that EU negotiators had signaled a willingness to begin work on drafting a detailed legal text, and that U.K. negotiators had agreed to present detailed proposals for fishing quotas and state aid.

While both the EU and Britain said a post-Brexit agreement was still some way off, European Commission chief Ursula von der Leyen said a deal was still possible.

“GBP positioning remains quite interesting to watch as it is now in neutral territory (+2% of open interest), but remained unchanged in the week 16-22 September,” said Francesco Pesole, an analyst at ING.

“We now estimate the risk of a no-deal outcome at 50%, and we, therefore, see GBP neutral positioning as highly complacent – highlighting a non-negligible downside risk for sterling.”

Helping the tone for the pound were comments from Bank of England deputy governor for markets and banking governor policymaker Dave Ramsden, who pushed back at the idea that the central bank was committed to negative interest rates.

“For me, I see the effective lower bound still at 0.1% which is where Bank Rate is at present,” Ramsden said in an interview with Britain’s Society of Professional Economists posted online.

Elsewhere, the Turkish lira slid to a fresh all-time low, as the support from a surprise central bank rate hike last week evaporated. The dollar rose 0.4% to 7.8421 lira. It also rose 0.5% against the Russian ruble, on mounting concern that both Turkey and Russia could be drawn into the conflict between Armenia and Azerbaijan over the enclave of Nagorno-Karabakh.