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Strategists at Deutsche Bank are no longer seeing a compelling narrative of dollar weakness into year-end for three reasons. With the US election outcome extremely uncertain, they have changed their view and turned neutral.

Key quotes

“Whoever wins the White House, the odds of a structural shift towards easier fiscal policy in the US have dramatically declined. Should the Democrats lose the Senate (the risk of this now appears high) and unified government becomes impossible, this would make agreement on sizeable fiscal expansion more difficult.”

“The risks of a protracted contested election outcome are significant. The market is likely to be most concerned by genuine uncertainty on the vote margin rather than political uncertainty relating to a refusal to concede. The margins on numerous key states are very narrow (Georgia, Nevada, Wisconsin) or uncertain (Pennsylvania, Michigan) leading to a risk of protracted recount and litigation battles. This could last well into December.”

“Beyond the election, the COVID-19 winter wave has proven quicker and bigger than we thought. Europe is already on ‘soft’ lockdown and the US numbers are likely to get worse. There is a significant risk that protracted election uncertainty leads to a politicization of coronavirus containment measures accompanied by an inability to provide fiscal support.”