Hopes for an early agreement on another stimulus package in the US have spurred demand for risky assets and pushed the greenback to its lowest values since early September.
On Tuesday, House Speaker Nancy Pelosi and US Treasury Secretary Steven Mnuchin said they were close to reaching an agreement and would continue to negotiate on Wednesday. At the same time, Pelosi said that she is optimistic, although there is still a lot of work to be done.
Against this background, the USD index fell to 1.5-month lows around 92.7 points.
"Markets are encouraged by hopes for financial support for the US economy, although earlier it was assumed that the negotiations will end on Tuesday. The optimism is due to the fact that the parties expressed goodwill and showed flexibility in terms to reach an agreement as soon as possible, "said Mizuho Bank specialists.
Due to the dollar's broad front weakening, the EUR / USD pair reached the levels near which it was last seen on September 21.
"The EUR / USD pair recovered from August lows around 1.1695, breaking through the short-term downtrend and last week's high at 1.1831. It maintains a neutral attitude with a bullish bias. Growth above 1.1871 will lead to a rally to 1.1971 and 1.2015. A net breakdown of the last level will target the pair at 1.2625, where the 200-month moving average runs, "said Commerzbank.
According to strategists at MUFG, "The belief in incentives persists. This is one of the growth drivers for the euro. At the same time, it looks vulnerable due to the increase in new cases of COVID-19 in the EU, as well as due to the negative economic consequences of reintroducing lockdowns in the region. "
"Recently, the possible outcome of the November elections has been putting pressure on the dollar. The worst-case scenario for the greenback would be a Joe Biden victory and a Democratic majority in the Senate, "they added.
Experts at Goldman Sachs stressed that if Biden wins the presidential election, the USD index may decline by about 6%, to two-year lows around 88.2 points.
"Democrats have already promised to adopt a new $2.5 trillion economic stimulus package early next year. This will have a beneficial effect on the stock market: the stock will go up. But it will put pressure on the dollar," they said.
The bank believes that the US dollar can only strengthen if Trump wins.
Deutsche Bank has a similar opinion. According to them, "Democratic victories in the White House and Senate will lead to increased fiscal stimulus in the United States, damage the dollar and strengthen the euro."
"A scenario in which Joe Biden wins the presidency and Republicans maintain a majority in the Senate will lead to less aggressive fiscal policy, but will likely put more pressure on the Fed," they added.
It is assumed that by the end of the coronavirus crisis, the balance of the Federal Reserve will grow to $10 trillion. A full-fledged printing press in the US could undermine confidence in the dollar.
"If Trump is re-elected, fear of trade tensions will strengthen support for the USD. It will also strengthen the dollar against other major currencies," said Deutsche Bank.
The most popular poll aggregator predicts that Joe Biden has an 87.3% chance of winning the Electoral College.
The final pre-election debate between the candidates for the U.S. presidency is scheduled for Thursday, October 22.
