The forex market across the globe has been busy with the US Presidential Election and its twists and turns. The US dollar has weakened with Biden’s win.
The Presidential Election victory has come to Joe Biden, while the Senate victory goes to the Republicans. Interest rates will continue to be low for a longer period. Major currencies have strengthened with Democrat Joe Biden’s win.
US Dollar Index
US Dollar index Tests Key Support Level
The US Dollar index slid to a two-month low against other currencies on Friday, 6 Nov. The counting of votes prolonged for many days, before announcing Biden’s win. Investors expect the dollar to weaken further. The dollar index has come below the 93.00 levels hitting 92.22, the levels seen last in the first week of September. The US Dollar has fallen almost 0.35% for the week. It is the fourth week of reversal as it continues to remain above its critical support level at 91.90 levels. The foreign policy of the United States has suffered from Trump’s “America First” policy. Things are expected to change with Biden’s leadership.
With the US election result finally out, the next news item to look forward to is the FOMC meeting to take place soon. Jerome Powell will give his views on the decisions taken by the Fed. Powell may bring in bond buying, especially as interest rates are expected to move towards zero in the days ahead.
The US Dollar is trading weak with the Biden win. The Democrats will be forming the government, while the Republicans at the Senate can block all initiatives by the Democrats, which is sending the US Dollar index to multi-month lows against major currencies. The Senate has the Republicans at the helm and may make things tough for the Democrats to move their agenda.
The Unemployment Report in the US came above expectations, with the unemployment rate seeing a sharp decline.
Biden Expected to Favour EU
With a solid conclusion coming to the US elections, the Euro saw a rally towards the 1.18 levels again. It is a strong resistance level, and the European Union does not have a confident economy to drive it up further.
The economic sentiment has been negative in the European region, and the Brexit news continues to remain inconclusive, but the US elections have been driving the Euro higher. New lockdown measures have been reintroduced in the European Union. The 4th quarter does not look very optimistic in the region, but Joe Biden’s victory has been driving market sentiment. The Russian Rouble has gained in the forex market.
Manufacturing activity has been recovering in Spain and Italy. But the Services sector has been quite dampening. In Germany, data regarding industrial production and factory orders have fallen below forecasts, though they were slightly better.
In the week ahead, Germany’s ZEW Economic Sentiment figures will be in focus, so will the trade data from Germany.
Gold Extends Gains
The US Dollar index has fallen by 1.6%, which is the biggest drop in four months. A weak dollar will lift the prices of metals like gold and copper. Oil has moved higher to $39 per dollar, a surge by 4.2%.
Biden’s victory is expected to be good for the commodity markets, especially for gold. Gold has been on a bullish trend after crossing the $1,350 per troy ounce. It has faced resistance at $2,000 in multiple attempts. It remains to be seen if it breaks above the $2,000 level.
Pressure Increases on the UK to Finalize Trade Deal with the EU
The British Pound pulled back initially on Friday, 6 Nov, but later rallied higher towards the week’s high at 1.3150. It has closed at a two-month high level for the weekend. The GBP/USD is trading above the 50, 100, and 200 SMAs.
If the pair moves past its resistance at 1.1360, it may travel towards 1.3178, which is the peak it saw on 21 Oct. If it continues its positive run, the British Pound against the US Dollar may see a sharp surge to 1.3250 levels.
Though it looks like the currency is heading higher over thelong term, Brexit tensions will affect the British Pound. Biden has shown interest in the European Union while showing less inclination towards trade relations with the United Kingdom, especially as the deadline for Brexit talks near.
The USD/JPY currency pair has declined further to 103.33 levels on Friday, 6 Nov. The currency pair is moving towards the March lows at 101.20 levels if it breaches the lows on Friday at 103.17.
The US Dollar against the Japanese Yen has declined 1.15% last week. The US Dollar is on a risk rally and is pushing the US Dollar to low levels.
President Suga expressed concern over the volatile movement of the Japanese Yen. Voicing his concern, Suga says, “We will work in close contact with the concerned overseas authorities to keep the currency stable”. Bank of Japan Governor Haruhiko Kuroda has also vowed to work with financial authorities to maintain stability in the currency.
The Yen is making it good for exports. Negative rates have to deepen to stabilize the Japanese Yen.