DXY: US Dollar Index declines as traders predict a Biden victory.


The US dollar index has fallen today as the US goes to the polls.
Most market participants are predicting a Biden victory and a blue wave.
This would lead to more government spending and stimulus.

The U.S. Dollar Index (DXY) fell more than 0.80% today as traders remain optimistic about the election. The index is trading at $93.42, well below yesterday’s high of $94.30.

US Dollar Index has fallen before the election
US dollar rises as political risks diminish

The Dollar Index is falling today as traders assess the risks of today’s vote in the United States. While polls have shown that Joe Biden will win the presidency, they also understand that polls tend to be wrong. They were wrong on the 2016 election and on the Brexit poll.

The market hopes that the end of the election will bring clarity about US policy, regardless of who wins. It also expects that Washington policymakers will come up with a new stimulus deal after the turbulent election period.

According to analysts, the dollar is falling because political uncertainty and the risks of stimulus programs are about to be removed. This is because the dollar is often seen as a safe-haven currency whose price rises as uncertainties increase. In fact, other risk-sensitive assets such as equities have also risen, with the Dow Jones and the S&P 500 gaining more than 1%.

According to some analysts, the dollar index is falling because investors are pricing in a blue wave. This would mean more incentives and a record issue of debt. In a statement, Win Thin, an analyst at Brown Brothers Harriman, said

“It appears that markets are pricing in solid blue wave odds today, implying significant fiscal stimulus and the issuance of bonds in 2021”.

On the other hand, according to ING, a trump card gain would drive the dollar higher. You wrote:

“The dollar would benefit from this, but since the Fed is now targeting average inflation (and therefore its stance should be based on the “Behind the Curve” approach), this should provide less support for the USD than was the case during the first Trump mandate.

Meanwhile, the Dollar index is falling ahead of major market events. The Fed will start its monetary policy meeting tomorrow and make its interest rate decision on Thursday. Analysts expect the bank to leave rates unchanged, but signal further easing at the December meeting.

On Friday, the Dollar Index will react to the Non-Farm Payroll numbers from the US. Analysts believe the numbers will show that the economy created more than 600,000 jobs in October as the unemployment rate dropped to 7.7%.

Technical Outlook for the US Dollar Index
Technical table of the US Dollar Index

The dollar index is trading at $93.35, the lowest level since October 29. The price is moving along the bottom line of the Bollinger Bands, while the Relative Strength Index (RSI) has moved from the over-bought level of 73 to currently 65. Thus, it appears that the bears are in control, meaning that the index’s next target is $93.00. However, you should expect considerable volatility once the results start to flow in.


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