Daily Currency Update

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The US Election is almost here

GBP - British Pound

Sterling started the week trading in a narrow trading range versus the Euro and the US Dollar in what appears to be the quiet before a potential storm coming in from across the pond. Though Brexit negotiations and the impending lockdown in England are high up on investors’ watchlists, it’s the US election which is the real market moving event.

Sterling is expected by many camps to have a tough November, kicked off by Thursday’s Bank of England decision which is expected to increase monetary stimulus but not to cut rates, yet. The Bank will probably look to increase its Quantitative Easing program this month, but the prospect of an interest rate cut for the first time in its history into negative territory is definitely not off the table.

Economists at Barclays are expecting the Bank to announce an additional £50 billion of quantitative easing that would allow the programme to extend into 2021, which won’t be positive for Sterling. The second lockdown in England will do nothing to ease fears around a continued economic slump that may see many businesses shut for good and a swathe of job losses.

The only small respite for Sterling may come from positive Brexit negotiations. Reports suggest that there could be encouraging news around a Brexit deal as early as the first week of November. BBC have stated that negotiators are in an intensive ‘tunnel’ period of negotiations whereby intensive talks take place behind closed doors. The mood around Brexit appears to be cautiously optimistic, with weekend reports suggesting there was a break around the deadlock on the contentious fishing rights. A potential solution would allow the UK to claim it has won back control of its seas - a key government demand and pave the way for the country’s fishing industry to catch more than it does currently.

Prime Minister Boris Johnson described the second lockdown starting on Thursday as preventing a "medical and moral disaster" for the NHS but the biggest disaster may come to that of the economy and the UK currency. Johnson stated that the lockdown would last for one month, however media reports on Monday stated that the government are expecting it to last into the new year. The Times has reported that cabinet ministers have warned of an extended lockdown, with a brief relaxation over the Christmas period.

Key Movers

This is will be a November to remember, with one of the most closely watched elections in US history. Though a Joe Biden victory, and a Democratic ‘blue wave’ victory is the popular prediction, we only have to go back to the Clinton vs Trump election of 2016 to know that anything is possible. If we go further back to 2000, the election of the millennium, where we saw Bush up against Gore, we saw a result of an undecided vote and it took until the 12th of December for the result to be announced after a recount in Florida. A scenario like this could leave the markets undecided and a period of heavy volatility for the US Dollar.

What we do know is that the next 72 hours will be very volatile for the markets. In 2016, the unexpected Trump victory initially sent the US Dow Jones down by 750 points, however within 24 hours, the index had regained all its losses and actually hit fresh record highs. The EUR/USD exchange rate shot up by almost 3% on the result upto 1.13, only to then U-turn and head all the way down to 1.09. In this election, 100 million Americans have already casted their votes through postal ballots, and this is therefore expected to be the biggest turnout for any election in US history. To put this in context, in 2016, there was a total of 120 million votes.

The Royal Bank of Australia kicked off with the first of three central bank decisions this week. As expected by many economists, they cut their main interest rate from 0.25% to 0.1%, and added $100 billion to their bond buying programme. The outlook from the pandemic in Australia appears to be better than Europe and the US though, and this change in monetary policy is expected to give the economy the boost it needs to build out of Covid.

Expected Ranges

GBP/USD: 1.2760 - 1.2990 ▼

GBP/EUR: 1.1160 - 1.0990 ▼

EUR/USD: 1.1580 - 1.1730 ▼

GBP/AUD: 1.7950 - 1.8310 ▼

GBP/NZD: 1.9110 - 1.9620 ▼