News & Analysis


Sterling struggled to make clear advances against the dollar last week, lagging the G10 move with only JPY performing worse against the weakening dollar. Headlines highlighting the lack of progress in renewed Brexit negotiations likely hung a few additional pounds around sterling’s neck as it tried to climb higher against the weakening dollar. Markets have traded relatively flat this morning as the news on the US election over the weekend is being digested. Both sterling and the euro are flat at the time of writing while the dollar is generally selling off mildly across the G10 with the exception of JPY. The pound still remains one of the most expensive major currencies to hedge as the new November 15th deadline to sort out a trade agreement approaches. Over the weekend, Prime Minister Johnson and European Commission President Ursula von der Leyen used a phone call to try and settle major differences in order to strike a trade deal in time for the next deadline, but access to British fishing waters and level playing field rules for businesses continues to hold up negotiations. One thing is for sure, sterling volatility isn’t over with the US election results becoming clear over the weekend.


With currency markets clearly being driven by a risk-on market mood today, the euro is trading mixed across the G10 – up against CHF, JPY and USD while down against all other currencies. Virus developments over the weekend showed another record in daily cases in France and Italy, adding to the already grim eurozone outlook. The Bank of France Governor Francois Villeroy de Galhau revised down the central bank’s forecast for GDP growth in 2020 from -8.7% to a contraction between 9-10%. Meanwhile, Italian bonds rose along with the general stock futures surge this morning, sending the 10-year BTP yield to an all-time low and possibly limiting the EURUSD upside for now. Greece’s 10-year bond yields also saw record lows this morning, while the Spanish and Portuguese 10-years are nearing zero. EU trade ministers will meet today to plan a reboot of transatlantic trade relations after the elections, even as the euro area prepares to hit US products with fresh tariffs worth $4 billion as soon as tomorrow. Germany aims to mend transatlantic trade relations and may take a softer approach today that would see the EU delay those tariffs, according to a senior official. German Foreign Minister Heiko Maas stated over the weekend that his government would make “concrete proposals” to the US on how to improve the ties, and discussed that a “new deal” was needed. The issue will be raised at today’s meeting. The euro area data calendar is light today, with the eurozone Sentix Investor Confidence being the main release of note at 9:30 GMT.


The dollar continued to weaken on Friday as it became increasingly clear that Joe Biden had won the US Presidential election, but that barring a double victory for Democrats in two runoff elections in George in January, Republicans would control the Senate. This morning’s price action has been mostly consistent with this theme, after all major news networks called the election for Biden over the weekend. Current President Donald Trump has not conceded defeat, and launched a number of legal challenges, which currently seem to have little chance of changing the apparent outcome. In particular, Biden’s large leads in states like Pennsylvania, which currently stands at more than 40,000, means that legal challenges about the validity of late-arriving ballots, or recounts, are unlikely to make a difference to the outcome. Much of this week will focus on President-elect Biden’s prospective policies. Although major changes in fiscal policy will require a vote in the Senate, executive orders do not, and may be relevant for areas such as the Paris climate accord, immigration, and the coronavirus pandemic. Foreign policy is another major focus, especially relations with China. The Chinese renminbi has rallied more than 2.5% since its lows on Wednesday and is currently trading at its strongest level against the dollar since 2018, likely in anticipation of a more stable US foreign policy, although a warming in relations is far from certain.


The Canadian dollar ended last week’s session smack bang in the middle of the G10 currency board, rallying over 2% against the dollar – a move that was broadly mimicked by the euro. The loonie’s rally was predominantly driven by the outcome of the US election, however, sentiment around the Canadian dollar was also aided by the scaling back of lockdown measures in Ontario and a beat in October’s labour force survey. This week, however, the calendar for the loonie is sparse. The only notable data point this week is Deputy Governor Carolyn Wilkins’ speech on Thursday at 18:30 GMT to the Munk School of Global Affair and Public Policy which is entitled Exploring Life Post-COVID. The speech isn’t expected to hold much in the form of monetary policy commentary besides that which is retrospective, meaning the event is unlikely to drive the loonie.



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