US dollar slipped sharply after reports that Donald Trump is discharged from the hospital and his health conditions are sound. The report has sparked the rally in risker assets including stocks, gold, and commodity-related currencies.
The hopes over the second stimulus package have also supported the equities and lowered investor’s sentiments towards the safe-haven assets.
USD index fell to 93.40 level after hitting 94.60 level early last week. The dollar is likely to rally in case lawmakers fail to sign a deal.
“I think the market is convinced that sooner or later fiscal stimulus will materialize in the wake of data that continues to show a moderating U.S. economy,” said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.
The investors are now looking towards the U.S. Federal Reserve that is scheduled to release minutes from its September meeting on Wednesday. The minutes from the European Central Bank will also help in creating a new trading trend.
European stock markets are following Wall Street. Euro surged to $1.17 level for the first time since late last month. Euro came under pressure due to the strengthening dollar and the threat of the second coronavirus wave. In addition, the European Central Bank believes that the euro is currently overvalued, which is making exports expensive for buyers.
Euro had hit two years high of $1.20 level early last month, but the common currency failed to sustain the momentum. Despite the latest selloff, the euro has outperformed the US dollar over the past couple of quarters.
British Pound also jumped against the US dollar on Tuesday amid increasing prospects for the trade deal between Eurozone and the British government. Sterling is currently trading around $1.20 against the greenback. US dollar is likely to remain volatile in the coming days due to the presidential elections.
“There isn’t a clear consensus on how the dollar should trade on this degree of political uncertainty in the U.S.,” said Jane Foley, senior FX strategist at Rabobank.