The Post Trump Era

GBP

The pound had an average week as it played second fiddle to the main event across the pond. Sterling only made gains against the Dollar (1.8%) and Yen (0.45%) but lost ground to the Euro (0.4%). There were more Brexit headlines this week though they did not bring anymore news as Michel Barnier reiterated that there were still key sticking points in the negotiations, these being state aid and fishing. Over the weekend Boris rejected a £90M offer from Europe for fishing access to British waters stating that it was “too low” and “not enough as both sides carryon playing hardball. England also caught up with the rest of the United Kingdom as it entered a national lockdown and with it bringing extended help from both the Bank of England and the Chancellor of the Exchequer. The BOE moved their announcement to 7AM on Thursday in order to give the Rishi Sunak free airtime and announced no change interest rates but increased equative easing by £150B. Many analysts are now predicting that negative interest rates will only come into play if there is a no deal. The Chancellor extended the furlough scheme to the end of March as coronavirus cases continue to increase.

This week should bring some news on trade talks as they enter their final phase and markets are still pricing in a deal with the pound finding support at 1.10 against the Euro. With the Conservatives now behind in Labour in preference polls the Government should be more inclined to get a deal done and not risk a further hit to the economy. With a new President in the Whitehouse the “special relationship” could be tested, and Biden has been known to favour Germany over the UK. The chances of the UK getting a trade deal with the world’s largest economy now looks unlikely as the new commander in chief has in the past stated that he would not go against the Good Friday Agreement. Data wise, UK unemployment figures are released on Tuesday but as the furlough scheme has been extended this will not reflect the true picture.

USD

The Greenback had a rollercoaster week at the markets tried to predict the next President. Trump took an early lead securing both his beloved Florida and Texas but then it started to slip as the postal votes got counted and Biden took the lead in many key swing states, though this didn’t stop Trump announcing that he won several times. The Dollar weakened off towards the back end of the week as Joe Biden was priced into the market and with that brings his enormous spending plan though with a split Congress it could be difficult for him to impose this. Data wise saw non-farm jobs announced on Friday with a reading of 638K vs a forecast of £600K though with the presential rate at full flight it did not impact the markets.

The volatility for the dollar is likely to continue as the fallout from this election is still to be seen and Trump has not officially conceded yet with several active legal challenges. The race for the senate has also not ended and may not or a while as the campaign in Georgia is expected to continue for another 2 months, this will cloud the markets view as the amount of power Biden has is till not known. On the data front, the US will see CPI data on Thursday and consumer sentiment on Friday, but this is expected to move the Dollar giving the factors currently at play.

EUR

The Euro had the strongest week against the Dollar since July as the likelihood of a Joe Biden Presidency came apparent, finishing the week just below 1.19. Though it was not all positive for the Europe as a second economic downturn now looks imminent on the continent and this will way on the Euro and most likely stop any chance of hitting 1.20 against the Dollar. The only major data to come out of the Europe last week were retail sales on Thursday but even this failed to impress at 2.2% versus a low target of 2.8%.
Looking ahead a Biden Presidency is likely to be good to the European Union due to his Pro EU stance and should lead to end of trade conflicts threatened by Trump as well as the US re-joining the Paris Climate Accord. Though this further appreciation in the Euro has not gone unnoticed and further comments from the ECB can be expected as they believe it to overvalued and thus effecting their exporting potential. On the data front we will see figures for Eurozone November Sentix survey and the German ZEW. Christine Lagarde will also be at the ECB forum on Thursday and will be joined by the FED’s Powell and the BOE’s Baily.