Sterling drifted marginally higher against the US dollar yesterday, as UK political news flow has gone from momentous to monotonous in a matter of days. The Government failed to reach the required two-thirds of votes in the House of Commons to get its motion for a general election carried through Parliament last night. However, they will try again today in the form of proposed legislation, which will have a lower, 50% threshold of votes in the Commons. Success seems likely today, given the Government only needs an extra 21 votes from Labour, SNP and Liberal Democrat members of Parliament. The date of the election is proving a matter of contention, with the Government seeking an election on the 12th, when many university students have left campus, and the opposition reportedly seeking one slightly earlier. This morning’s data will include Money and Credit figures from the Bank of England, including M4 Money Supply and Mortgage Approvals.


The euro traded flat against USD and GBP yesterday, amid a lack of significant news flow. Eurozone M3 money supply grew 5.5% in September, a slowdown from 5.8% in August. Narrower measures of money such as M1 also saw a slowdown in annual growth. Loans to non-financial corporations, a key leading indicator of growth, also slowed to 3.7%, although this is broadly consistent with the past year or so. Former European Central Bank President Mario Draghi spoke at an event marking the handover of the ECB Presidency to Christine Lagarde, using the occasion to call for fiscal policy loosening in the Eurozone. Lagarde takes the reigns of a divided ECB. The heads of German, Dutch, Austrian and French central banks have criticised the recent restart of asset purchases, and the prospect of fiscal loosening is still strongly opposed by many elements of policymaking in Northern Europe.


The dollar broadly weakened yesterday as risk-assets began to regain some ground following last week’s losses. The move was generated by headlines from Chinese officials over the weekend that both parties were close to finalising terms for the “phase one” deal. The positive sentiment was reiterated by Trump Monday morning. Both presidents Trump and Xi are expected to sign the narrow trade deal on the sidelines of the APAC meeting on November 16-17. However, preliminary reports suggest that the planned tariff increase in December on consumer goods worth up to $160bn is yet to be officially scrapped, it is expected to be foregone though. The narrow trade deal will come as a relief for the Federal Reserve which has been bogged down with the trade war in 2019 and may lead to some tentative optimism at Wednesday’s meeting, but the prospect of further tariffs in December regardless of the narrow deal will cap Powell’s positivity. Markets are still unanimously expecting a rate cut by the Federal Reserve this week. Today will be relatively light in data before tomorrow’s Fed meeting, while PCE and GDP releases are also scheduled for the second half of the week.


Yesterday, the loonie continued in last week’s vain and continued to rally. However, prior to Wednesday’s Fed and BoC meeting, the momentum in the rally has slowed substantially. USDCAD was completely flat overnight, despite some declines in crude oil prices, which have reversed all of Friday’s gains over the past 18 hours.

FX Elsewhere

The Argentine peso made marginal gains yesterday after centre-left populist candidate Alberto Fernandez beat incumbent President Mauricio Macri in the polls over the weekend. The market previously showed its distaste for a Alberto Fernadez government during the primaries back in August. Following the announcement that Fernandez won the primary election securing 47.4% of the vote against the incumbent Macri’s 32.3%, USDARS spikes some 36% before the BCRA intervened with reserves, while 10Y bond yields also rose 8 percentage points and CDS pricing increased accordingly. A marked increase in capital controls, which now sees savers unable to purchase more than $200 via bank transfer or $100 in cash, stemmed the peso’s declines and alleviated some pressure. The unofficial “blue chip” peso rate remained substantially higher, while onshore blue pesos, the black market rate, sat some 10 peso’s higher than the official rate at close. Market’s still maintained substantial scepticism over the peso as Argentina slips into technical default on short-term debt liabilities, but the capital controls have prevented any further run in the currency. Investors will look towards Fernandez’s fiscal plan, debt restructuring talks with private creditors and the IMF, along with ministerial appointments to gauge the extent to which the crisis in Argentina will deepen.



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