On Wednesday, the dollar gained from its early losses against risk-sensitive currencies after preliminary results of President Donald Trump leading in Florida against Democratic challenger Joe Biden.
“If Biden won Florida, he was almost certain to win the entire race but uncertainties seem high and we are seeing a correction in risk-on trades,” said Yujiro Goto, head of FX strategy at Nomura Securities.
Although President Trump is leading in Florida, the other competitive swing states such as Georgia and North Carolina will determine the outcome which has not yet showed its election results.
The dollar index stood at 93.626 on Wednesday. It lost 0.9% on Tuesday, its biggest daily drop since late March as traders bet on a Biden victory.
A win for Biden will most likely scar the dollar. It has been expected that there will be less confrontation on trade issues with china and with other trade partners unlike what President Donald Trump is doing.
Election results on Wednesday are anticipated to be unclear by the investors, with markets hedging against the risk of a contested election or a potentially drawn out process as mail in ballots were counted.
“A contested election probably takes all of the SPX, Bond yields and the USD (at least versus majors) down meaningfully,” sad Alan Ruskin, chief international strategist at Deutsche Bank in New York.
In the daily charts of GBP/USD, the pair edged lower early morning in the Asian Session.
The sterling fell 0.2% to $1.3036, erasing earlier gains of 0.6%.
As what we can see in the chart, the sterling gained early morning almost resisting at the resistance level at 1.31966. However, the DXY quickly pushed higher due to the uncertainty in the U.S. Presidential Elections and a risk-off sentiment rose for a brief moment which pushed the dollar higher.
One of the reasons which may also factor in the losses of the sterling is the short break from the trade talks between the EU and UK regarding the Brexit deal. The possibility of a no-deal Brexit is a negative sentiment for the sterling.
Trading any currency paired with the US dollar should be taken with pre-caution this week due to the volatility spikes that the U.S. presidential elections bring. It would be best to stay on the sidelines for now and wait for the market to calm down.
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