Dollar Gains; Safe Havens in Favor as Virus Surges

The dollar pushed higher in early European trade Wednesday, with traders turning away from riskier currencies given the current uncertainty surrounding the coronavirus pandemic as the U.S. presidential election draws near.
At 2:55 AM ET (0655 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.2% at 93.138. EUR/USD was down 0.2% at 1.1774, falling for the third consecutive session, while USD/JPY was down 0.2% at 104.19.
The dollar has seen some strength of late, with traders seeking out this safe haven as the virus spreads in Europe, Britain and the United States, fanning concerns that economic growth will weaken once again.
The euro has suffered lately from this move, not helped by the news that French President Emmanuel Macron is set to give a televised address on Wednesday evening, amid local reports that his government was leaning toward reinstating a national lockdown to curb a resurgence in coronavirus cases.
That said, trading ranges are becoming more limited as growing wariness about the U.S. presidential election is starting to limit large currency movements.
Polls show Democrat rival Joe Biden has a lead over Republican incumbent President Donald Trump, but many traders are nervous as the same polls failed to predict Trump's victory four years ago.
A tight result could lead to legal battles over potential voting irregularities, delaying the outcome of the election and creating more uncertainty, which would likely weigh on the dollar.
“Investors seem to be caught within the dichotomy of short-term (i.e. coming weeks) and medium-term (i.e. the 2021 view) outlooks,” said ING analyst Petr Krpata, in a research note.
“The former suggests caution due to the rise in the pandemic in Europe and the risk of the U.S. election outcome,” he added, but ”the constructive medium-term outlook and the possibility of missing out (on the rally) suggest that, despite the bumpy ride ahead in coming weeks, periods of risk assets coming under pressure should be one-off and not long-lasting. This means a prolonged USD strengthening trend seems unlikely.”
Elsewhere, GBP/USD fell 0.1% to 1.3035, remaining above the physiologically-important 1.30 level, with European Union chief negotiator Michel Barnier talking again with his British counterpart as the two sides try to strike a last-minute trade agreement.
Sterling has been trading in a tight range of late, with “the next move in either direction (and the break of the range) coming from the eventual outcome of the negotiations, which are unlikely to materialise until mid-November,” ING’s Krpata said.
The Bank of Canada holds its latest rate-setting meeting later Wednesday, and is expected to hold its overnight interest rate at 0.25%, following its long-term commitment to keep interest rates at historic lows.