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The US election dominated the news agenda last week and Biden’s seemingly clear victory has already led to FX buyers selling off US dollars.
Although Trump has not yet conceded defeat, markets are already orienting themselves to the prospects of a Biden presidency from January 2021.
The US Dollar Index (DXY) hit a high of 94.30 on the eve of the election when there was most uncertainty as to who the eventual winner would be.
Since then, it has slumped to as low as 92.13, nearing the 17-month low of 91.80 recorded in September.
… due to Covid and stimulus package
Rising Covid-19 cases in the US are the major contributing factor to the falling value of the dollar.
Before the election, it was predicted that a Biden mean a larger stimulus package being introduced to aid the US’ economic recovery from the pandemic.
However, with the outcome of who controls of the Senate still up in the air, it is thought that Biden could yet face Republican resistance for his hoped-for cash injection.
The prospect of a larger stimulus package than under Trump, alongside rising Covid cases and the possibility of an obstructive Senate, has weighed down the dollar.
As a result of the slumping US dollar, the Pound rose from a low of US$1.29 last week to a high of almost $1.32 this morning.
Sterling did not benefit as much against the US dollar as the Euro did, with a Biden win being seen as detrimental to the chances of a UK-US trade deal but a positive development for US-EU relations
Markets await UK-EU trade talks progress
The pound is currently valued at around €1.11 but this could move either way should any news emerge from the UK-EU trade negotiations.
Most speculators are expecting an agreement to be announced at any moment over the next two weeks, despite both sides admitting significant differences remain over fisheries and state-aid.
Boost for equities
The certainty of the clear outcome in the US presidential election has been positive for global equity markets, particularly as Biden is seen as less protectionist on trade.
Indeed, investors believe a Republican-controlled Senate could limit Democrat inclinations to impose higher taxes, injected larger stimulus and introduce stricter regulation in areas such as tech.
This has led to rallies in all global equity markets, with Asian markets growing by 2% over Sunday night.
Mixed week for oil
Oil also benefitted from improved risk sentiment after the election, rallying from US$35 per barrel at the start of last week to almost $39.50.
However, Covid-induced lockdowns and ongoing production fears limited its post-election growth and it opened this week back at around the US$38pb mark.
Good week for precious metals
Precious metals, as is usually the case, rallied as the US dollar weakened.
Gold grew from US$1880 per ounce to $1960 through the week, while silver grew from $23.4 to $26.
Another good week for Bitcoin
Bitcoin also continued its recent surge, growing from the mid US$13,000s to a peak of $16,000, through selling has since seen it drop slightly. It opens the week valued around the $15,000 mark.
New economic data will continue to be viewed through a Covid lens, with retrospective numbers reduced in importance and having less market impact than usual.
Markets will instead focus on any significant comments from central bankers regarding future monetary policy moves.
Markets will be watching for any sign of further QE from the European Central Bank and any sign of the BOE taking UK interest rates into negative territory.
Any firm developments from the UK-EU trade talks will also have a significant impact for the strength of the pound.
Highlights this week include:
Tuesday (10 November)
- UK Employment report
- German ZEW economic outlook surveys
- US Jolts Job Openings report
- US Energy Information Administration short term energy outlook
- American Petroleum Institute (API weekly crude stocks figures
- FOMC’s Brainard speaks
- OPEC monthly report
- Speeches from ECB’s Lagarde, De Guindos and Lane
- UK GDP, Industrial and Manufacturing Production and Trade balance figures
- German and US inflation reports
- US Weekly Jobless claims
- BOE’s Bailey
- Multiple ECB members finishing with Lagarde
- FOMC’s Williams
- Eurozone GDP figures
- Michigan Consumer sentiment survey
- Speeches from:
- FOMC’s Williams
- BOE’s Bailey and Tenreyro