03/11 – America decides

GBP: Pound hits 3 week low

EUR: Stimulus demand waning

USD: Time to decide

Sterling

Sterling hit a 3-week low yesterday against the dollar but has remained relatively calm elsewhere despite further backlash to the government’s latest lockdown plans and ahead of the Bank of England meeting this Thursday.

We actually think that the Bank of England meeting this Thursday has the potential to offer the pound support with some in markets expecting another expansion of the QE program and a continued belief that negative interest rates are coming. Stimulus is not necessarily a negative and alongside an extension of the furlough scheme will help the wider economy.

We also expect the slow trickle of positive Brexit headlines to continue.

For now, today it’s all about the US election with sterling hopefully staying out of the way of a volatile USD.

Euro

Signs from the Eurozone that the ECB’s stimulus package may be starting to push on a string has helped the euro solidify a tad. Demand for the ECB’s bond stimulus package fell to its lowest level since inception last week, showing that investors are happy to put their money elsewhere. While only one week’s trading data it may allow the ECB to ease back on the level of stimulus that is offered at the December meeting.

Given the focus on the US election today, we would expect the single currency to remain relatively quiet through today.

US Dollar

Today is election day and the culmination of one of the most bitter electoral contests in US history. We see three possible scenarios playing out in the next 36hrs: a ‘blue wave’; Joe Biden and the Democrats winning the White House, Senate and the House of Representatives, ‘Gridlock’; Biden winning the White House, Democrats winning the House and the Republicans retaining the Senate, and ‘Status Quo’ with Trump holding on to White House, Republicans retaining the Senate and Democrats only winning the House.

A ‘blue wave’ should be negative for the USD with ‘gridlock’ and ‘status quo’ pulling the USD higher. We should be able to tell how things have gone by around 6am tomorrow morning although we know the media is going to be extremely cautious around calling the results in swing states and the wider election given the belief that that legal challenges to the result are in some way inevitable.

Watch out for the results from Pennsylvania, Ohio, Florida and North Carolina; if those go for Trump then the polls have once again proven to be inaccurate and the dollar will likely be flying higher.

I will be up all night commenting on the results and monitoring the currency impact of the votes on our Twitter account – @equalsfx.

Elsewhere

The Reserve Bank of Australia cut interest rates and expanded its QE program overnight in a bid to support the local economy through its recovery from the Covid-19 crisis. Such a move was largely expected although the AUD has slipped following Governor Lane’s statement to the market.

We expect similar measures from other central banks moving forward with the ECB already telling investors that policy will shift in December, and a crucial Bank of England meeting this Thursday.

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.