US Markets

FOREX-U.S. dollar gains on surge in COVID-19 cases, lockdowns in Europe

Credit: REUTERS/THOMAS WHITE

The safe-haven dollar rose on Wednesday, pushing the euro to one-week lows, on news of lockdowns in Germany and France as coronavirus cases surged, with implied volatility gauges in the European currency and the yen hitting multi-month highs as traders positioned for next Tuesday's U.S. election.

By Gertrude Chavez-Dreyfuss

NEW YORK, Oct 28 (Reuters) - The safe-haven dollar rose on Wednesday, pushing the euro to one-week lows, on news of lockdowns in Germany and France as coronavirus cases surged, with implied volatility gauges in the European currency and the yen hitting multi-month highs as traders positioned for next Tuesday's U.S. election.

Germany decided to shut bars and restaurants for a month and France prepared to tighten controls on movement as the pandemic surged across Europe and financial markets tumbled at the likely cost of a second lockdown.

The European Commission proposed a series of new measures to fight the pandemic in the European Union, calling the new spike in infections "alarming".

"When things get scary everybody rushes to the dollar," said John Payne, senior futures and options broker, at Daniels Trading, in Chicago.

"The currency markets right now are dealing with problems in Europe, and Europe – I don't know if the market thinks they have a lot of bullets left to fire at this thing. From a quantitative easing standpoint, that's what is going to come. You see the dollar being more attractive because maybe Trump won't go in that direction."

Traders were bracing for volatility as the U.S. election loomed.

Democratic presidential candidate Joe Biden leads Republican President Donald Trump nationally by 10 percentage points, a Reuters/Ipsos poll showed.

"We are seeing some position-trimming ahead of the election, with the market still short dollars," said Vassili Serebriakov, FX strategist at UBS in New York.

"The expectation is for a Biden presidency and that is consistent with a weaker dollar story. But as some of the polls have tightened the last couple of days, markets are just taking some risk off the table given the uncertainty," he added.

The UBS strategist said a Biden administration is seen de-escalating trade tensions with traditional allies such as Europe and Canada, as well as China, which should improve market sentiment overall and weigh on the dollar as a safe haven.

In afternoon trading, the euro EUR=EBS was down 0.4% against the dollar at $1.1754, after sliding to a one-week low.

One-month euro/dollar risk reversals EUR1MRR=FN, a gauge of currency sentiment in the options market that measures the ratio of calls over puts, showed on Wednesday that investors were most bearish on the European common currency since June.

The dollar though slipped 0.1% against the yen to 104.31 yen JPY=EBS. Earlier, the greenback dropped to a more than one-month low.

The euro also fell 0.5% against yen to 122.60 yen EURJPY=, after earlier sinking to its weakest since July.

One-week implied volatility gauges in euro and yen rose to their highest in nearly seven months. EUR1WO=R, JPY1WO=R

That suggests investors are preparing for sharp price moves, focused on both the European lockdowns and the United States as it struggles to contain its coronavirus epidemic ahead of the pivotal election next Tuesday.

Legal battles between Republicans and Democrats over how to count votes have raised the risk that the outcome of the election will be disputed.

The dollar index =USD, which tracks the greenback against a basket of six currencies, was up 0.3% at 93.39.

Elsewhere, sterling fell 0.5% versus the dollar to $1.2958 GBP=D3.

========================================================

Currency bid prices at 2:54PM (1854 GMT)

Description

RIC

Last

U.S. Close Previous Session

Pct Change

YTD Pct Change

High Bid

Low Bid

Euro/Dollar

EUR=EBS

$1.1753

$1.1796

-0.36%

+4.84%

+1.1799

+1.1718

Dollar/Yen

JPY=D3

104.3000

104.4350

-0.11%

-3.95%

+104.5500

+104.1700

Euro/Yen

EURJPY=

122.58

123.14

-0.45%

+0.52%

+123.1800

+122.1900

Dollar/Swiss

CHF=EBS

0.9099

0.9088

+0.10%

-5.98%

+0.9127

+0.9086

Sterling/Dollar

GBP=D3

1.2990

1.3047

-0.42%

-2.04%

+1.3063

+1.2918

Dollar/Canadian

CAD=D3

1.3301

1.3187

+0.83%

+2.36%

+1.3333

+1.3180

Aussie/Dollar

AUD=D3

0.7056

0.7129

-0.97%

+0.62%

+0.7157

+0.7038

Euro/Swiss

EURCHF=

1.0694

1.0716

-0.21%

-1.46%

+1.0719

+1.0677

Euro/Sterling

EURGBP=

0.9045

0.9041

+0.04%

+6.99%

+0.9076

+0.9015

NZ Dollar/Dollar

NZD=D3

0.6653

0.6708

-0.79%

-1.10%

+0.6719

+0.6630

Dollar/Norway

NOK=D3

9.3495

9.1920

+1.73%

+6.60%

+9.3825

+9.2100

Euro/Norway

EURNOK=

10.9934

10.8310

+1.50%

+11.75%

+11.0050

+10.8002

Dollar/Sweden

SEK=

8.8470

8.7226

+1.06%

-5.37%

+8.8622

+8.7200

Euro/Sweden

EURSEK=

10.3981

10.2887

+1.06%

-0.68%

+10.4045

+10.2700

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Herb Lash; Editing by Jonathan Oatis and David Gregorio)

((gertrude.chavez@thomsonreuters.com; 646-301-4124; Reuters Messaging: gertrude.chavez.reuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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