05/10 – Markets following Trump’s ECG

GBP: Brexit balance helping keep sterling calm

EUR: Happy in its range

USD: Trump’s health the main driver

Sterling

Positive Brexit headlines on Thursday and Friday have kept sterling elevated over the weekend as negotiators to continue to work on a deal with 10 days to go until Boris Johnson’s deadline by which the UK will leave the EU without a deal.

European Commission President Ursula von der Leyen and Prime Minister Boris Johnson agreed on Saturday that there are still “significant gaps” in the negotiations, but ordered their negotiators to work intensively “to try to bridge” them according to Politico. Once again it will be a case of waiting and seeing just how significant these gaps are but the prospect of a deal does look a lot more likely than it was a week ago.

For sterling therefore, it is safe to say that the downside risk has only increased; a decision that snuffs out this relative optimism will be pounced upon as a reason to sell the pound with so little time left on the negotiating clock.

Covid-19 headlines may also have their hand in affecting sterling today with computer foul-ups and increased chances of further lockdowns set to be discussed in parliament today. Chancellor Sunak addresses the Conservative Conference at lunchtime and we will have to watch to see if he lets out any hints on policy for the coming months.

Euro

With positioning data in the market showing that traders remained happy to keep themselves long the single currency despite its recent decline, we expect the euro to remain supported at current levels.

US Dollar

Risk assets are trading a little higher and the dollar a little weaker this morning as doctors report that President Trump’s prognosis has improved although he remains in hospital, at least when not doing photo ops. We’ll run through our thoughts on how Trump falling ill affects the election in our election round-up later today; 2020, what a ride.

New polling overnight shows that Joe Biden now has as much as a 14 point lead in the battle for the White House following the election although before the President’s diagnosis. Such a lead may be viewed as unassailable but it’s not over until the fat lady sings and she hasn’t even started on her chips yet.

Elsewhere

The wider pick up in risk is helping the AUD ahead of the country’s budget which will be delivered overnight tonight. Those looking for support from the Australian government will be glad to hear that plans for AUD7.5bn of infrastructure spending has been brought forward.

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.