Investors drove the US dollar lower ahead of the first Presidential debate between President Trump and former Vice President Joe Biden. The contemporaneous sell-off in equities, Treasury yields, and the currency tells us that investors are worried that the debates will polarize voters further and cause more uncertainty. While debates rarely win elections they can be important turning points in adding or subtracting momentum. President Obama’s famous comeback in the last debate sealed his win against Mitt Romney, while Hillary Clinton failed to put away Donald Trump by not being aggressive enough in 2016. As our colleague, Boris Schlossberg noted, “Given both men’s penchant for malapropisms, misquotes and mental gaffes – it is really anybody’s call as how the debates will pan out.”

Ahead of the debate, the best performing currencies were the Australian and New Zealand dollars which is no surprise considering that both countries have successfully controlled a second wave and are in the process of relaxing restrictions. In contrast, the Canadian dollar sold off against the greenback after Quebec tightened restrictions in 3 of its largest regions including Montreal and Quebec City. These new restrictions which will last for 28 days ban any visitation of family or friends, closure of libraries, museums, cinemas, bars, casinos, and restaurants (takeout only) with a minimum social distancing requirement of 2 meters. These are pretty strict measures for a region that last reported only 750 new cases (Spain last reported 12K new cases) but reflects the government’s commitment to stemming the second wave.

Euro and sterling also powered higher with the single currency leading the gains. Despite the recent surge in virus cases, confidence in the Eurozone did not deteriorate materially in the month of September. The economic sentiment actually improved while industrial sentiment fell slightly. Inflation on the other hand fell more than expected in Germany which signals weakness for tomorrow’s broader Eurozone report. Low inflation is a major problem for the central bank and one of the leading reasons why the ECB may consider further easing. In the UK on the other hand, mortgage approvals ticked up but the focus was on Brexit. The final round of talks began and there’s a wide divide between the European Union and the UK on many issues. According to the latest headlines, Brussels rebuffed new UK proposals on state subsidies. While Chinese PMIs and revisions to the second-quarter UK and US GDP are scheduled for release over the next 24 hours, the main headline tomorrow will be how Trump and Biden perform in tonight’s debate.