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Pound plunges against euro as election risks spook traders

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The British pound fell sharply against the euro on Thursday, as election risks predominated in market sentiment — Brexit uncertainty spooks traders.

The British pound GBP=D3 fell to €1.11 at this writing.

The euro EUR=EBS held steady against the dollar at $1.1736 on Thursday.

The dollar slipped to its weakest level in more than two years against the yuan and eased against other Asian currencies as Democrat Joe Biden edged closer to the White House in a nail-biting U.S. presidential election.

Financial markets, however, were braced for days or even weeks of uncertainty as Republican incumbent President Donald Trump has opened a multi-pronged attack on vote counts in several states by pursuing lawsuits and a recount.

That could hamper the dollar in the short run, traders say.

Elsewhere, sterling fell against the dollar and the euro after a media report that the Bank of England, which announces a policy decision later on Thursday, is considering negative interest rates.

The Federal Reserve, which is expected to keep policy on hold on Thursday, is also in focus as traders navigate market volatility in the wake of a knife-edge U.S. election that has pushed up the yuan and the Mexican peso.

Biden has claimed the pivotal Midwestern states of Wisconsin and Michigan. Late reporting showed the former vice president with a lead in Nevada and Arizona, while Trump held a lead in Georgia and Pennsylvania.

Expectations that a Biden administration would strike a slightly softer tone on trade policy is likely to weaken the dollar against the currencies of countries that often faced the threat of tariffs during Trump’s administration, analysts said.

“For slightly different reasons, we could also see the euro gain against the dollar.”

The onshore yuan CNY=CFXS briefly rose to over a two-year high of 6.6381 per dollar, extending its recent gains as China’s currency has become a popular trade to bet on a Biden victory.

Emerging market currencies such as the Malaysian ringgit MYR=MY and the Indonesian rupiah IDR= also rose against the greenback.

The dollar index =USD against a basket of six major currencies stood at 93.350, little changed from the previous session.

The dollar was little changed at 104.33 yen JPY=D3.

Even if Biden manages to surmount the legal challenges from Trump to become the next president, Republicans look likely to retain control of the Senate and can use that to stymie Biden’s agenda – another complicating factor for currency traders.

Some analysts said Republican control of the Senate would prevent a Biden government from raising corporate taxes, which is positive for equities. However, a divided government also decreases the chances of big fiscal stimulus, which could be seen as a negative, other analysts said.

The Mexican peso MXN=, which had taken a hammering from the Trump administration’s hard line on trade, was little changed at 20.96 per dollar following a 0.9 per cent gain on Wednesday.

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