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Market report – 07 November 2016

Overview

All eyes will be on the US Presidential election this week. No matter which way the US public decide to vote, volatility is to be expected across all asset classes. A republican victory could be a catalyst for a huge dollar sell off, with many market participants fearful of the damage Donald Trump could do not only to the US economy, but their relations with nations worldwide.

Tuesdays GDP estimate along with an interest rate decision and monetary policy statement from the Reserve Bank of New Zealand completes top tier data releases for the week.

GBP

Unsurprisingly, the Bank of England decided to keep interest rates at 0.25% last Thursday. In its quarterly inflation report, the central bank pointed to the pronounced slide in Sterling post Brexit as the primary driver behind its hike in its 2017 inflation forecast to 2.7% from its estimate of 2.0% in August.

Theresa May cannot trigger Brexit without putting it to an MP’s vote in the House of Commons, the High Court ruled last week. This came as a huge setback for the Prime Ministers Brexit strategy – she revealed at the Conservative Party Conference last month that she would trigger Article 50 by March.

Tomorrow’s GDP estimate for the last quarters growth will provide an insight into the official announcement next month.

EUR

A rather unexciting display from the Euro last week. Economic and market developments did not suggest an improved fundamental backdrop. Medium-term inflation expectations, as measured by the 5-year, 5-year inflation swap forwards, fell to 1.45% on November 4 from 1.47% a week earlier.

With no top tier data releases from Eurozone members this week, the key driver for EUR/USD performance this week will be the US elections.

USD

The US election is now the most backed in history, according to Betfair. With Brexit still raw in people’s minds, the market is not convinced that a Hilary victory is a done deal.  With months of mudslinging, email ‘scandals’ and untruths, the media have been blessed with an abundance of storyline’s.

A Democratic victory is widely seen to support the Dollar. Conversely, a Republican victory would likely cause a large Dollar sell off, with the uncertainty that Donald Trump would bring to office the main catalyst. Much like Sterling post Brexit, an overreaction with a large sell off is not unimaginable and would provide UK importers with Dollar buying opportunities at levels they have not seen for some time.

Rest Of the World

Egyptian banks are moving into uncharted territory as they have started trading currency without central bank restrictions for the first time.

The central bank said last week it expects short-term volatility in the exchange rate.

Mexico’s peso rallied with stocks after the FBI said it maintains the view that Hillary Clinton’s handling of her e-mails wasn’t a crime.

Mexico’s currency, which tends to strengthen when Republican presidential candidate Donald Trump’s campaign has a setback, was set for its biggest jump since September.