Dollar Could Weaken Further Under Biden Administration

The U.S. dollar is poised to further weaken, amid market views that geopolitical risks are falling after the election and that the next stimulus package will likely be smaller than expected, according to analysts. Citi Private Bank strategists predicted a weaker dollar ahead, given that a Biden administration would reduce uncertainty in international trade policy.

On Friday, the U.S. dollar index, which tracks the greenback against a basket of its peers, hit a low of 92.456 – its lowest level since September 2. Following projections over the weekend that Joe Biden has won the U.S. presidential election, the dollar continued diving sharply to around 92.162 on Monday. In Asia trading on Tuesday, however, it bounded on Pfizer vaccine hopes to last trade at 92.813 — but still below the 94 level seen earlier this month.

Asian currencies strengthened in the last few days, with the offshore Chinese yuan hitting a 28-month peak on Monday and appreciating further to last trade at 6.61 on Tuesday morning. The Japanese yen hit an eight-month peak of 103.18 against the dollar on Friday, according to Reuters.

A divided Congress — with Republicans controlling the Senate and Democrats holding onto the House — may mean a small stimulus package. That increases pressure on the Fed to ramp up its bond-buying program and other economically supportive policies and in turn pressures the dollar, Phillip Futures said.

Source: FXPro