EUR / USD
The Euro made significant gains ahead of Tuesday’s New York open as the US dollar lost ground. Overall risk appetite strengthened amid strong gains in equities and defensive demand for the US currency weakened. In this environment, the Euro strengthened to the 1.1700 area against the US currency.
The October New York business conditions index strengthened to 65.1 from 56.1 previously while factory orders increased 1.1% for September after a 0.6% advance the previous month. There was no significant impact from the data as political considerations dominated market activity.
There were some reports that PEPP is likely to remain the principal channel of support in the fresh ECB December stimulus package, but the bank could use the APP purchases as well. Council member Schnabel commented that there was still scope to cut interest rates further.
The dollar remained on the defensive with the Euro peaking close to 1.1740 before fading. The dollar briefly lost further ground after the New York close with Euro highs near 1.1770, but gains faded quickly amid evidence that President Trump was doing better than expected by the opinion polls and projected to win in Florida. The dollar regained strongly against the single currency and commodity currencies and the Euro dipped to lows near 1.1600 before settling below 1.1650.
Vice President Biden was ahead in the popular vote, but there was a high degree of uncertainty over undeclared states. The dollar held steady despite expectations that mail-in votes would tend to weighted towards the Democrats. The Federal Reserve will announce its latest policy decision on Wednesday with no change expected.
JPY
There were sharp gains in equities ahead of Tuesday’s US open as risk appetite strengthened. Despite underlying uncertainty, there were expectations that the Democrats would win the US elections and sanction a substantial fiscal support package. The yen lost ground on the crosses, but the dollar gradually lost ground amid wider losses and traded around the 104.50 level into the New York close. US futures dipped lower as confidence in a clear election outcome faded. The yen struggled to gain ground on the crosses and the dollar strengthened to above the 105.00 level.
Bank of Japan Governor Kuroda stated that it is desirable for currencies to move in a stable manner, although there was little overall impact as US considerations dominated. Overall US bond yields moved lower which provided an element of yen support.
There had been some hopes that the Presidential outcome would be known early, but the full result may not be known for a few days, especially with delays in counting mail-in votes in key states such as Pennsylvania. The Senate outcome is also uncertain with indications that the Republicans may retain control, dampening fiscal stimulus expectations. There are also concerns over the risk of legal challenges and further delay given the tightness of the vote and the dollar settled just below 105.00.
GBP
The EU Commission stated that there was still no breakthrough on a level playing field and fishing in the EU/UK trade talks, although there had been progress in other areas. Talks will continue and EU Chief Negotiator Barnier is scheduled to update the EU Ambassadors on Wednesday. There was little overall Sterling impact with expectations that a deal would eventually be secured with talks set to continue over the next few days and into the weekend.
The UK currency posted notable gains as global risk appetite strengthened sharply. The Euro retreated to 7-week lows around 0.8970 while Sterling gained further traction following the break above 1.3000 with further gains to above 1.3050 at the European close.
Sterling retreated from peak levels following reports that Barnier would signal that there was no breakthrough in talks, although there was solid buying on dips amid strength in risk appetite. There was sharp volatility surrounding the US election with a brief move to above 1.3100 against the dollar before a sharp retreat. Sterling settled just below 1.3000 against the dollar with the Euro around 0.8970. There were strong expectations of further Bank of England quantitative easing this week.
CHF
Swiss were unchanged in October for the second successive month and in line with consensus forecasts while the year-on-year inflation rate increased slightly to -0.6% from -0.8% previously. The National Bank will remain uneasy over the threat of deflationary pressures within the economy.
The Swiss franc lost ground as risk appetite strengthened, although the Euro was unable to hold gains while the dollar declined to near 0.9120. The Swiss currency held firm amid no early US election decision with the Euro around 1.0670 while the dollar recovered to the 0.9150 area.
