30/10 – Dollar continuing higher as equities weaken

Jeremy Thomson-Cook
Jeremy Thomson-Cook 30 October 2020

GBP: Holding its own against the EUR

EUR: ECB will add stimulus in December

USD: Dialing in on the election risk now


Sterling has had a quiet week although we don’t expect that to continue for much longer as the political event risk of the US elections and Brexit negotiations come to a head in the coming weeks. Despite positive Brexit headlines sterling continues to trade lower and the issue remains one of longer-term economic support and growth regardless of what a deal may look like; it’s becoming clear from conversations with those close to both the EU and UK governments that any deal will be a deal in name only and while that may limit some issues for international businesses, it is not a panacea for higher costs and delays.

Unless we see headlines suggesting a Brexit deal is imminent then we expect to see the pound continue lower against the USD and stagnant against the euro.


The European Central Bank matched expectations yesterday by telling markets that there is little doubt that further policy support will be coming in December. ECB President Christine Lagarde was at pains to emphasise that all instruments that the ECB can use could be and that includes interest rate cuts.

For us, conversations remain focused on their Pandemic Emergency Purchase Program and their liquidity programs as a rate cut from the current negative levels is unlikely to actually help much in the real economy.

As we had expected the single currency moved lower through the session and has hit one-month lows against the USD in the past 24hrs. While we would have seen a further decline in the euro had the ECB actually moved policy as opposed to hinting at it, we expect further losses as we head towards the end of the year.

Needless to say, if the ECB does not see European parliaments come to the party with additional fiscal support then the onus falls on them to help and that is another negative for the EUR moving forward.

European GDP figures are due today and much like the US’s yesterday, may largely be looked through given the more present concerns.

US Dollar

The US economy, despite growing at a record breaking 7.4% in the 3rd quarter, remains around 3.5% below the level it entered the Covid-19 crisis. For illustration, that is roughly the depths that the US economy fell to during the Global Financial Crisis, and it took 18 months to recover from that in GDP terms; we are still living with the wider economic consequences.

In further good news, the jobless claims numbers while still at historically high levels are trending in the right direction. Unfortunately, Covid-19 levels are rising in a majority of states and this can only limit jobs growth moving forward.

With the election only on Tuesday we now expect those narratives to dominate. We maintain our belief that the risk of Republicans holding on to the Senate is underpriced and therefore cannot rule out additional dollar strength from here.


Alongside weakness in equity markets the Japanese yen has pushed higher on haven flows. With markets in the red once again we do not see that trend ending soon.

Have a great day and a better weekend.