BREAKING - FX Markets to Remain Net Short U.S. Dollar After Election: Reuters Poll

BENGALURU (Reuters) - Bets against the U.S. dollar were expected to linger or even increase in the immediate aftermath of the Nov 3 presidential election, despite jitters in the run-up along with surging coronavirus cases, a Reuters poll showed.

Illustration photo of U.S. dollar and U.S. flag from The Edge Markets

After trading within tight ranges for much of October, the greenback rose to a four-week high on Friday on fears the election results will be contested in the courts, along with economic damage from renewed lockdowns in Europe.

Traders reduced net short dollar bets in the latest week, according to data from the Commodity Futures Trading Commission. But bets against the U.S. currency have outstripped those in favour for 31 weeks in a row and that is set to carry on.

In the Oct 27 - Nov 2 Reuters poll, nearly 70% of analysts, or 29 of 42, said net short dollar positions would either stay the same or rise further immediately after the election. Only 13 said they would ease off.

“The dollar’s move is obviously dependent on the election, but what is striking is ... how little territory the dollar has been able to gain, and if anything, this pullback is viewed by many investors as a dollar-selling opportunity,” said Steve Englander, head of global G10 FX research at Standard Chartered.

Thirty-nine of 60 analysts with a view said the election outcome would be the biggest driver of the dollar over the coming weeks rather than the coronavirus spread, where the United States leads the world in daily infections.

Slightly fewer than half of respondents, 25 of 57, said incumbent Donald Trump getting re-elected along with a continued Republican Senate - seen as unlikely according to poll averages - is the outcome that would bring about a stronger dollar.

The broader Reuters survey of more than 70 respondents showed foreign exchange strategists expect the dollar to weaken against most major currencies over the coming year.

“USD positioning remains heavily skewed to net-short territory by its historical standards, but given the centrality of the U.S. election risk event there is surely more room for those net shorts to be rebuilt into the dollar in a market-friendly election outcome,” said Francesco Pesole, FX strategist at ING.

Democratic challenger Joe Biden leads in national opinion polls and a win for him and his party taking the Senate would probably hurt the dollar, partly on expectations of a swift, large fiscal stimulus package.

“The USD oversold condition does suggest a surprise win by President Trump could easily trigger a material short-squeezing effect on the USD,” added ING’s Pesole.

“At some point we get back to what I call the fundamental view: the dollar is too expensive at these prices for the interest rate differentials that now exist in the world,” said Kit Juckes, head of FX strategy at Societe Generale.

“We will see the dollar after the election, in all probability, return to the pandemic lows.”

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