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Dollar dominates amid stimulus and Brexit uncertainty, ahead of US retail sales

Here is what you need to know on Friday, October 16:

The dollar is holding onto its gains amid growing uncertainty about US fiscal stimulus and the potential for a breakdown in Brexit talks. Surging eurozone cases are also weighing on sentiment and US consumption data are eyed ahead of the weekend.

Fiscal stimulus: President Donald Donald Trump wants a large relief package Congress, above $1.8 trillion already offered. However, Senate Republicans are willing to allow for only $500 billion and House Democrats want $2.2 trillion.

Brexit: UK Prime Minister Boris Johnson is set to announce his decision on whether to continue or abandon talks on future relations, and GBP/USD is on the back foot.

EU leaders agreed to extend talks with the UK but did not say they would “intensify them.” Moreover, Brussels expects a move from London to state aid and fisheries. Britain’s Chief Negotiator David Frost expressed disappointment. If Johnson opts to continue talking, the pound would rise. 

Eurozone coronavirus cases continue rising with several countries and regions tightening restrictions in a bid to halt the spread. Jens Spahn, Germany’s Health Minister, said his country’s contact tracing capacity is reaching its limits. Paris and other cities will come under a nighttime curfew. The recent spikes are weighing on the euro and also on global markets. 

US elections: With the clock ticking down to the elections on November 3, chances are falling and the safe-haven dollar is on the rise while stocks are hesitating. Former Vice-President Joe Biden maintains his large lead in national and opinion polls against Trump. Both men participated in parallel televised townhall events which probably did little to move the needle. 

See Trump & Biden do little to impress during dueling town halls

Democrats have a chance of winning the Senate, opening the door to a quick and large stimulus that investors want. However, the race for the upper house is tighter and markets also fear higher taxes and regulation.

Gold has been edging higher, topping the $1,900 level. 

US retail sales figures for September are set to show moderate rises after August’s statistics fell short of estimates. The previous release triggered accelerated talks on Capitol Hill, but the limited timetable implies low chances of a deal. Nevertheless, consumption is key to the US economy. 

See US Retail Sales September Preview: It’s about employment

Later in the day, the University of Michigan’s preliminary Consumer Sentiment Index for October is forecast to remain around the 80.4 figure recorded in September. It is also a gauge of the mood ahead of the vote. 

See US Michigan Consumer Sentiment October Preview: It’s really an employment survey 

On Thursday, the US reported a disappointing jump in initial jobless claims to 898,000.

Cryptocurrencies have retreated from the highs, with Bitcoin experiencing a sharp drop, trading at around $11,300 at press time.

Read More: Dollar dominates amid stimulus and Brexit uncertainty, ahead of US retail sales

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