02/11 – Dollar stronger with hours to go until US votes

GBP: Lockdown hampers sterling upside

EUR: Single currency waiting on lockdown news

USD: Stronger as we wait on polls

Sterling

The pound has once again fallen against the dollar and rose against the euro over the weekend and markets digest the multitude of factors that are driving currencies currently. Obviously the decision of the UK government to enforce a month-long lockdown from Thursday is the toughest news for UK assets given the prevailing belief that any such measure will likely have to be extended past a 4 week period and that businesses who may have already had a tough year may no longer have Christmas to bail them out.

Sterling will be back to watching infection numbers it feels like although the true impact of these measures won’t be felt for another fortnight or so given the virus’s incubation period.

Brexit headlines will also feature with reports over the weekend suggesting negotiators are moving closer to breaking the impasse on fish. Given we haven’t seen either negotiating team for a few weeks now, and we haven’t seen reports that they are self-isolating, it’s clear that the UK and the Eu have entered ‘the tunnel’ and may be close to a breakthrough worth a positive push in the pound. We still have one eye focused on the EU meeting in a few weeks’ time as when a deal will be agreed but anything can happen between now and then.

Euro

We called EURUSD pretty perfectly last week and we believe that the weakness seen in the past few sessions will last through the week should our call on tomorrow’s US election bear out. Wider and harsher lockdowns in Europe will also keep the EUR under some pressure moving forward although signs that the infection rate may be slowing will boost sentiment soon enough.

Manufacturing PMIs are due throughout the morning with the run-in to these lockdowns expected to have damaged sentiment from earlier levels.

US Dollar

It’s nearly over.

Tomorrow is the day that US voters head to the polls and, all things being well, we should have a good idea what the political landscape will look like in the US for the next two years by breakfast on Wednesday.

There are some pretty juicy caveats to all of this of course, the major one being that there is no clear evidence that President Trump will agree to vacate the White House should he lose. We expect a challenge through the courts regardless of the size of the margin that Biden may manage to win by, but the closer the election, the more likely a narrative of a stolen election will grow roots.

Polls over the weekend have shown a narrowing, with one poll in the state of Iowa showing Trump with a 7 point lead over Biden, similar to what Trump managed back in 2016 when the odds looked like he had no hope in the wider national polls and we all know how that ended up.

The dollar will likely strengthen into the election on the pure risk basis that polls have not told the full picture of how the US will vote and the knowledge that the US is not getting any more stimulus anytime soon.

Our comprehensive round up of the US election and what it means for the dollar will be in your inbox on Wednesday morning.

Elsewhere

As the recovery goes, so do oil prices and there’s not much joy in either at the moment. Alongside that stronger dollar, commodity prices have shifted lower and the currencies with which they are linked are coming lower again.

Have a great day.

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Jeremy Thomson-Cook

Jeremy Thomson-Cook

Jeremy has over 13 years experience working in the FX industry. As a specialist in political risk mitigation and currency hedging, he regularly advises clients on the day-to-day moves of the markets and the implications of fiscal and monetary policy on international businesses.