The Pound finished the week by hitting a seven-week high against the Euro. This high was due to confirmation from Ursula von der Leyen, the President of the EU commission that the UK-EU negotiations are making progress. Though she did confirm that there were two key issues which still needed to be sorted, these being fisheries and state aid. If a deal is to be done, then we must see breakthrough on these issues in the next couple weeks or this will start to weigh on the Pound. As stated on last week’s report there was no significant data out of the UK to mention.
If the positive headlines continue then the pound should continue rise off the back of them. The markets are still expecting a deal to be done in the second half of this month so I wouldn’t expect too much from the Pound this week but do believe that it should stay in the upper half of the trading channel it’s been in and above 1.10. Away from Brexit, the Bank of England hold their monetary policy meeting on Thursday. Rates are expected to stay the same but watch out for questions and comments on negative rates in the press conference after. Any suggestions of negative rates could lead to a selloff in the pound. Markets are expecting is an increase in quantitative easing by £100bn but this is believed to be priced into the markets already so should not impact the Pound.
The Dollar had an interesting week as it faced the weakness caused by the likely election of Joe Biden but also found some strength due to demand for the Greenback caused by a flight to safety as global equites had a torrid week as the rumours second lockdowns came to fruition. Trump has managed to narrow the polls in some key states as the election draws ever closer as well as many questioning the accuracy of the polls. Michael Moore, the famous documentary maker being most notable in his questioning as he believes that Trump supporters fear of the stare will have a knock-on effect of them being unwilling to take part in polls.
Tomorrow brings the election day but the confirmed result may potentially not be found out for up to a week or even month later. This is due to several factors but the main two being the massive uptake in postal votes and the potential legal challenges from both sides. The use of postal votes in this year’s election has increased due to the pandemic and will slow down the results as each state have different laws to when they will be counted. So, if a result is not discovered early and a key state which has a slow process for counting postal votes, the result of the election will get delayed. Both parties have an army of lawyers on standby to contest any dubious results in what is shaping up to be one of the most partisan elections. The Dollar is on for a volatile night and maybe week as the markets digest the results coming out on a state by state basis and try to predict a winner.
The Euro started the week strongly against the Dollar but then started to weaken off, this was due to the ECB press conference and Christine Lagarde directly saying that the Euro was overvalued. This led to a fall of just under 2% for the most traded currency pair. On the data front, Friday saw some decent figures coming out of the eurozone apart from German Retail Sales which just missed the expected figure at 6.5%. GDP for the eurozone came out at 12.7% against an expected figure of 9.4% though with France and Germany back in lockdown this positive gain will most likely be short lived.
The Euro is in for a quiet week this week with markets only watching for a change in the COVID numbers and if the lockdown measures can help contain the rising levels. The ECB have now committed to act in December and have said they will use any available tools; this has been mostly priced into the euro last week but could continue to fall further this week. The Euro is going to spend the week being reactive to both the Pound and the Dollar due to the major events mentioned above. Data wise will see Retail Sales announced on Thursday but given the other events this week its not expected to affect the markets.
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