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Dollar Edges Higher; Chinese Data, Unertain U.S. Political Situation Help

The dollar edged higher in early European trade Monday, with the disappointing Chinese GDP data weighing on risk sentiment, while traders also cast a nervous eye on the U.S. political situation.

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 93.8727, following a 0.7% rise last week when a global surge in coronavirus cases and an impasse over the stimulus package prompted caution. 

Elsewhere, EUR/USD was down 0.1% at 1.1709, USD/JPY was largely flat at 105.41, while USD/CNY rose 0.1% to 6.7024. 

Earlier 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 an increase from the second quarter's numbers. China remains the only major economy worldwide set to grow this year, according to new International Monetary Fund forecasts released last week.

Investors globally are pinning hopes on a robust recovery in China to help restart global demand as economies struggle with renewed lockdowns amid a second wave of coronavirus infections.

U.S. House Speaker Nancy Pelosi said Sunday that she was optimistic that legislation on a wide-ranging coronavirus relief package could be pushed through before the election on Nov. 3. But setting a Tuesday deadline for Congress to pass the measures leaves little time for such a bill.

Continuing the political theme, just fifteen days out from election day, Democrat challenger Joe Biden leads President Donald Trump by about ten points in national polls, and has a narrow lead in several battleground states. The pair are due to face off in a final debate on Thursday.

“President Trump will hope that this Thursday’s second and final TV debate in Nashville presents an opportunity to score some points off Biden,” said analysts at ING, in a research note.

“Any narrowing in the opinion polls will probably be taken as a negative by risk markets, increasing as it does the chances of a contested election. This comes at a time when financial markets are priced towards a benign outcome in the form of a Democratic clean sweep,” ING added.

Elsewhere, GBP/USD rose 0.2% to 1.2936. Traders are taking Prime Minister Boris Johnson’s comments about the U.K. government’s willingness to go for the Australia-style trade deal, i.e. no deal, with a large pinch of salt. Speculation is rising that the controversial Internal Markets Bill, which essentially rips up the Withdrawal Agreement that governs the current transition period post-Brexit, will be watered down by the House of Lords this week.

“If the market credibly believed in the threat of a no deal Brexit, GBP would be materially weaker today,” ING analysts said.

Still, time is running out before some form of deal to be done.

“Two months is the absolute minimum required to legislate for a deal, if one is done,” said Adam Cole, head of currency strategy at RBC Europe, in a Bloomberg report. “So early November is the real deadline. If it’s clear at that point that we are heading for no deal for sure, we have around 5% downside across the board.”

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Oct 19, 2020