- EUR / USD is approaching 1.19 to hit the highest level since September 15.
- Biden’s victory and a divided Congress increase the appetite for risk, weighing on the US dollar.
- The coronavirus poses a downside risk for the EUR.
The EUR/USD extends last week’s gains to hit multi-week highs as investors buy risk and offer the US dollar as a safe haven from expectations of more monetary stimulus and less confrontational policies under the leadership of Democrat Joe Biden.
The pair has risen in the Asian session to 1.1895, the highest level since September 15, having risen almost 2% last week. At time of writing, the EUR / USD is trading above 1.1888, 0.08% above its opening price.
While Biden won the US election, Congress is now divided against expectations of a Democratic blue wave or control of both the Senate and the House.
A divided Congress means that the Democrats will struggle to deliver the long-awaited massive fiscal stimulus. However, it also means that the Federal Reserve may have to push through monetary stimulus. The central bank reiterated its dovish bias last week and expressed its willingness to do more if necessary. Furthermore, a divided government means little chance of sweeping regulatory changes and tax increases.
Lastly, Biden favors a multilateral approach to outgoing president Trump’s unilateral policies and it is likely to adopt a less confrontational attitude when dealing with China, the European Union and other nations.
As such, the Investors are buying risk, pushing stocks up and the US dollar falling safe haven. The dollar index, which tracks the value of the dollar against major currencies, has fallen to a 10-week low of 92.16.
However, the pair’s rise may stall if coronavirus numbers continue to rise in the euro zone. Major Eurozone economies such as Germany and France have already declared a month-long lockdown and France is reportedly planning to lower forecasts for 2021 economic output. The data calendar is light on Monday. The pair is therefore at the mercy of general market sentiment.
Credits: Forex Street
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