News & analysis


Sterling is trading higher against most major peers this morning, after the Bank of England kept rates unchanged and increased its quantitative easing programme by £150bn, £50bn more than widely expected. Among the assumptions underpinning the decision and accompanying Monetary Policy Report was the expectation that the UK would move to a free trade agreement with the EU on the 1st of January 2021. The forecast for growth domestic product this year was slashed, with the MPC now expecting an 11% contraction this year, followed by a 7.25% expansion in 2021. There was little indication that the Bank’s investigation into negative interest rates was progressing to the point where it was an imminent policy option. Amusingly, the Bank of England Twitter publicly posted a chart that appeared to show interest rates going negative, before deleting the post. It is unclear if this was a mistake, an error made by an intern, or an accidental leak of a chart produced for some kind of educational purpose. Monex Europe has reached out to the Bank of England for clarification but has received no reply as yet. To add to the confusion, the Sun newspaper seemingly published the headline that the Bank had increased QE by £150m ahead of the official release this morning. Governor Andrew Bailey said that the BoE would look into the suspected leak, while also saying that the Bank of England’s decision had no direct link to gilt issuance. The question of a direct link is somewhat besides the point, when the two are arguably linked indirectly by the Covid-19 pandemic. Both gilt issuance and quantitative easing are clearly influenced by the ongoing economic shock presented by Covid-19 and the associated Government response, and the BoE was quick to respond to volatility in gilt markets in March.


The main narrative possibly weighing on the euro remains the concerning virus situation in the eurozone, but the currency is so far riding on the coattails of the dollar weakness story coming from a Democrat lead at the time of writing. Italian Prime Minister Giuseppe Conte announced that Italy will approve new stimulus steps this week and is prepared to sell bonds if needed, while the government will restrict movements in Lombardy as of tomorrow. The worsening outbreak in the eurozone is starting to strain hospital systems there – in France, the use rate of ICU beds by Covid patients hit the highest level since late April. With the fresh lockdown measures in play throughout the eurozone’s largest economies, the bloc will have to wait and see if the containment measures are effective enough, or if other measures should be taken. For today, the euro likely continues to take cues from the US elections, while markets await five different European Central Bank speeches scheduled between 11:00 and 15:10 GMT.


The US dollar is well and truly on the back foot this morning and is weaker against most major currencies, while the US Presidential election results remain outstanding and a possible legal battle is commencing. Major news outlets such as the Associated Press have “called” a total of 264 electoral college votes for Democratic candidate Joe Biden, compared to incumbent President Donald Trump’s 214. The crucial midwest battleground states of Wisconsin and Michigan were among the races called for Biden over the last 24 hours. The states of Nevada, Pennsylvania, North Carolina and George have yet to be called. Although the incumbent President is leading in the latter three, the count is close and Biden only needs 6 electoral college votes – which could be supplied by the state of Nevada, where he is currently leading and is expected to provide full results today. As such, betting markets are overwhelmingly showing Biden as the winner. However, the Trump campaign has said it will lodge legal claims aimed at stopping vote counting in Georgia, Pennsylvania, and Michigan, and has demanded a recount in Wisconsin while continuing to claim that if all “legal” votes are counted, the incumbent will be re-elected. Nevada’s results today may make Biden the apparent victor as early as today, although given the developing legal battle this may not be enough to ensure an orderly transfer of power. The Federal Reserve will announce its latest policy decision today at 19:00 GMT, followed by a press conference 30 minutes later.


Despite trading in a 1.53% range yesterday, the loonie settled only marginally higher than its opening price as markets broadly settled as the Presidential result started to look clearer. The outcome is very status quo for the Canadian economy and the loonie, with a Biden presidency hamstrung by a GOP senate leaving little expectations for broad sweeping fiscal stimulus in the US – Canada’s largest trading partner. With the election practically wrapped up now, barring any big shocks, the loonie’s focus is likely to return to the Canadian economy. Over the last few days, the province of Ontario announced the active scaling back of lockdown measures over the coming fortnight. This is a welcome sign for the economy as some social consumption activities are now allowed under the new restrictions. Outside of this new development in Ontario, the economic focus will sit firmly on Friday’s labour market data, especially in the context of less active fiscal policy in the US.



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