Early gains on Wall Street retreated, leaving the large-cap S&P 500 down 0.2% at lunchtime in New York City and the high-tech Nasdaq Composite dish.
The mixed session on Wall Street came after Democratic House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin embarked on their latest talks on a major relief package to help businesses and households get through the coronavirus pandemic.
On Tuesday evening, both sides reported making enough progress to keep the potential $ 2 billion bailout alive, although nothing is expected to be signed until next month’s presidential election.
The dollar index, a measure of the dollar against six peers, slipped 0.5% to its lowest level since early September.
The fall in the dollar helped the pound, which has been volatile as post-Brexit trade talks nearing conclusion, rise 1.6% to $ 1.3145, its highest level in six weeks. The British pound has been given another head start following a Bloomberg report that Brexit negotiations are scheduled to resume. Boris Johnson, the British Prime Minister, interrupted trade talks with Brussels last week.
Trevor Greetham, a strategist at Royal London, said there was “a risk of an imminent event around the Brexit deal, but traders don’t know where to jump”.
Most of the other major currencies, including the euro and the Japanese yen, also climbed against the greenback in anticipation of an upcoming US bailout.
“Each time the market becomes more confident in additional short-term stimulus, the dollar drops a little more,” said Christopher Jeffery, investment strategist at Legal & General Investment Management.
Jim Leaviss, head of bond investments at fund manager M&G, said investors were watching the dollar with suspicion ahead of the US election. Indeed, the currency could be sold “strongly” if President Donald Trump lost but did not immediately concede defeat, as he had indicated he could, Leaviss added.
European stock markets fell on Wednesday. The regional Stoxx 600 slipped 1.3% while London’s FTSE 100 slipped 1.9%, with exporting sectors among the hardest hit.
Hopes of spending madness to combat the effects of Covid-19 have also spilled over into the U.S. government debt market. Yields on benchmark 10-year Treasuries, which move inversely to prices, added 0.02 percentage point to 0.81%, trading around their highest levels since early June.
U.S. bond prices are also under pressure from poll predictions that Democratic candidate Joe Biden will win the election and inject more relief funds into the pandemic-stricken economy.
Yields on 30-year bonds, the long-term debt most likely to be used for infrastructure and other public works projects, rose 0.02 percentage points to 1.62%, after have reached a four-month high.
John Higgins, of the research firm Capital Economics, said that if rising short-term bond yields, which anchor borrowing costs for businesses and households, “test” the resolve of the US Federal Reserve, it expected the central bank extremely loose monetary conditions.
Elsewhere, China’s central bank allowed the tightly controlled renminbi, which is not traded in international markets, to reach a 27-month high of RMB 6.64 against the dollar. The offshore version of the currency strengthened at about the same level.
This week, China announced third-quarter GDP growth of 4.9% from a year ago, highlighting how its economy rebounded from the worst of the pandemic.