US stock investors appear to have become sceptical about the chance of a US stimulus bill before the US elections on 3 November. Overnight, the USD Index (DXY) closed below 93 for the first time since 18 September. The US 10Y bond yield increased to 0.82%, a four-month high. The Dow, however, opened higher for a second day only to fall for the rest of session. Unlike Tuesday, the Dow did not close higher but ended 0.4% lower yesterday. Sentiment is likely to turn defensive of the second US presidential debate (tomorrow morning in Singapore). DXY is likely to be supported around 92.5 after four days of sell-off.
The White House and House Democrats have moved closer towards a stimulus deal around USD2tn but doubts persist over the 60 votes needed in the Senate to pass the bill. The Republicans hold a 53-47 majority in the Senate. Although markets have pivoted towards a Blue Wave election outcome, some asset managers have become wary about taking big directional bets due to the tight race to control the Senate. Of the 35 seats to be contested this year, 12 are too close to call.
GBPUSD has appreciated to 1.3150 on Wednesday, its highest levels since early September. EU and UK have agreed to resume talks with the aim of inking a Brexit deal by mid-November. There are, however, no guarantees that back and forth negotiations will be avoided in this “final” phase. Both sides will need to make concessions especially in three contentious issues – fishing rights, the settlement of disputes and the level-playing field. EU has maintained that the level of UK’s access to the single market will still require some compromise on UK’s sovereignty. Both sides understand the need for a deal but not at any costs. Either side could still walk away. For now, GBPUSD has probably moved into a higher range between 1.30 and 1.32.
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