Forex -Signals – Dollar Weakness Likely Temporary The dollar edged lower in early European trade Monday, with riskier assets to the fore after signs of economic recovery in China, but the greenback remains near a two-month peak as coronavirus cases continue to rise and political uncertainty in the U.S. reigns.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 94.552, after climbing to a two-month high of 94.745 last week and posted its biggest weekly rise since early April.

Additionally, EUR/USD gained 0.1% to 1.1633, having dropped to 1.1612 on Friday, its lowest in two months, while USD/JPY was down 0.2% at 105.36.

Dollar Edges Higher

Data over the weekend showed an increase in profits at China’s industrial companies for the fourth consecutive month in August, helping those seeking risk to move into equities and out of safe havens like the U.S. dollar.

ECB Leaves Rates, Asset Purchases Unchanged

However, it’s debatable how long this stance lasts as the number of new cases of the Covid-19 virus continue to rise. A number of countries in Europe, including France, Spain and the U.K., have extended restrictions given high infection rates, while four U.S. states in the Midwest reported record one-day increases on Saturday as infections rose nationally for a second week in a row.

Data on U.S. currency futures positions released on Friday also pointed to more upside potential in the dollar’s recovery, with speculators holding a big net short position in the greenback.

Boston Fed and MIT

Investors will be looking to the first presidential debate between President Donald Trump and Democrat Joe Biden scheduled for Tuesday, with the presidential election just over a month away.

Ahead of the debate, the New York Times reported on Sunday that Trump paid virtually no income taxes in recent years as heavy losses from his business enterprises offset hundreds of millions of dollars in income.

Dollar Down Amid Rising U.S.- China Tensions

“FX markets in Asia Wednesday morning may be the first litmus test of how the dollar will fare in the run-up to the election. One school of thought is that a strong Trump performance is equity positive/dollar negative. We have the view, were Biden to win, the dollar could decline in 2021 on a benign world view,” said analysts at ING, in a research note.

Elsewhere, GBP/USD rose 0.2% at 1.2770, above Wednesday’s two-month low of $1.2676, with the final round of scheduled Brexit trade discussions between the EU’s chief negotiator, Michel Barnier, and his British counterpart, David Frost, beginning in Brussels on Tuesday.

Pound to Euro GBPEUR Rises

Markets are pricing in a 40%-45% chance of Britain exiting the EU trading bloc without any alternative arrangements at the end of 2020 after the U.K. government threatened to ditch parts of its European Union divorce deal this month.

“Given the roughly 50:50 chance of deal vs no deal, we continue to see GBP as inadequately priced for the risk presented, with limited risk premium built into GBP. We thus see risks to GBP on the downside,” ING added.

Forex -Signals – Dollar Weakness Likely Temporary

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