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ACM Update Monday 9th November 2020

After what seemed like an eternity last week, the world finally got the results of the election which had markets globally on tenterhooks. We all watched on for days, waiting for the magic 270 number to appear alongside either the word ‘Trump’ or ‘Biden’, but still had to wait until the weekend for the result to be clear. Even then, the threat of a court battle still looms over the coming weeks.

Trump vs Biden

The historic vote saw Florida stay red which could easily have dented the Democrat campaign, some of the swing states doing exactly that multiple times during votes being counted, and a 2am speech from Trump claiming victory and fraud simultaneously. At the end of it all, ironically it was Pennsylvania which was enough to give Joe Biden the keys to 1600 Pennsylvania Avenue, or as it is more commonly known, The White House.

Trump’s legal threats will create uncertainty though and this is unlikely to be beneficial for the US Dollar over the coming weeks. We have already seen two-month highs on GBP-USD and also EUR-USD so for any of our clients selling Dollars, this is an important time to discuss a solution with your account manager, to establish the best approach. If you would like one of the team to reach out to you directly, please get in touch. The chart below shows the trend over the last week.

GBP-USD over the last week, including a 2 cent swing on election night.

The US Elections were not the only event of last week, with “Lockdown 2” starting in the UK and a number of other European countries. The chancellor Rishi Sunak has now extended the furlough scheme until March and we are now trialling city-wide testing in Liverpool in an attempt to stem the flow. There has even been weekly nationwide testing in some parts of Europe.

The RBA in Australia continued with its efforts to devalue the AUD, with a further interest rate cut and the expected announcement of AUD 100 billion worth of bond buying over the course of the next six months (equivalent to 5% of GDP). Interest rates now stand at 0.1% with the RBA stating not to expect any change in this for at least three years.

The Bank of England also opted to increase asset purchases, but by more than the market was expecting with £150 billion. The conversation about negative interest rates meanwhile seems to be mumbling on in the background. Often a highlight, the US Non-Farm Payrolls snuck under the radar, but above expectation. With all eyes being on the vote, this didn’t have much of an impact of Friday afternoon’s trading.

For the week ahead, markets will likely still be watching the outcome of the US election, where the presidential dust definitely hasn’t settled quite yet. For UK markets, is this likely to bring Brexit negotiations back into focus, quite possibly, so beware of volatility related to that. Early on Tuesday morning we have unemployment data alongside the claimant count which will be interesting given the number of high-profile job cut articles from major companies recently in the UK.

With Wednesday being a bank holiday in the US and Canada, expect liquidity to be slightly lower as a result. Thursday could well be a day to watch out for with the ECB Forum on Central Banking taking place virtually. We have a triple-header of key speeches from Christine Lagarde, Andrew Bailey and Jerome Powell, so expect plenty of movement there. Such speeches are impossible to forecast the rhetoric, so make sure to get in touch with your account manager to protect or at least hedge your risk.

written by

David Comber

David Comber is a Senior FX Trader at Aston Currency Management