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Currency Feed – Tuesday 8th November

US presidential election: The day of reckoning

Global stocks and the dollar rallied strongly yesterday on the eve of the US presidential election as a palpable sense of relief descended over markets after the Federal Bureau of Investigation once again cleared Hillary Clinton of email wrongdoing.  However, as US citizens prepared to vote in one of the most bitterly contested elections ever, the rally ahead of Tuesday’s US election looks to be running out of steam as investor grow more cautious.

The Federal Bureau of Investigation’s statement on Sunday again clearing Hillary Clinton of any wrongdoing over to her use of a personal email server while secretary of state triggered a sharp improvement in investor sentiment on Monday.

Stocks fell last week as markets thought a decisive Clinton victory was looking less likely, but Clinton’s reprieve saw the S&P 500 end a nine-day losing streak, its longest since 1980, with a 2.2 per cent jump on Monday, recouping more than two-thirds of the decline incurred over the previous nine sessions.  This positive sentiment Initially providing a boost for stocks across Asia before momentum faded.

Across the Atlantic, the Euro Stoxx 600 index rallied 1.5 per cent from a four-month low, with the Xetra Dax in Frankfurt up 1.9 per cent and London’s FTSE 100 1.7 per cent higher. In Tokyo, the Nikkei 225 rose 1.6 per cent.

Mixo Das at Nomura said the presidential election in the US is “the largest ‘known unknown’ markets have had to contend with since the global financial crisis”.

He said the recovery in Mrs Clinton’s chances should prompt a relief rally, but noted that a Clinton win would still be faced with a close contest for Congress, little room to manoeuvre on policy objectives and a difficult agenda in terms of foreign policy.

The dollar index was unchanged at 97.755 overnight, having climbed 0.7 per cent on Monday. Gold edged up 0.1 per cent to $1,282.66 an ounce, stabilising after improved sentiment on Monday dulled appetite for haven investments.

The Mexican peso, which has been a popular proxy for the US election, was another clear beneficiary from the perceived improvement in Mrs Clinton’s chances of winning the vote, while the broadly “risk-on” mood pushed down government bond prices, gold and the yen.

The peso was 0.2 per cent stronger at 18.5651 per dollar overnight, having jumped 2.3 per cent on Monday, its best session since its response to the first presidential debate, as markets perceived Mrs Clinton’s chance of winning had firmed and the markets priced in a lower risk of Mr Trump imposing protectionist trade measures against the US’s southern neighbour.

If Donald Trump prevails in tomorrow’s US presidential election, some analysts are siting that Mexican policymakers’ initial response would be to hike interest rates by 100-200 basis points at an emergency central bank meeting in an effort to support the peso.  This may also be accompanied by direct intervention in currency markets and small cuts to government spending.

The Japanese yen was flat at ¥104.44 per dollar overnight, a day after falling by the most since the first presidential debate as demand for haven assets waned. Similarly, the dollar was up 0.6 per cent against the Swiss franc at SFr0.9737.  Gold, traditionally viewed as a haven in times of market uncertainty was down $22, or 1.7 per cent, at $1,281 an ounce.  The euro was down 0.8 per cent at $1.1042 and sterling was 0.9 per cent softer at $1.2404.

Steve Barrow, head of G10 strategy at Standard Bank, said that while the dollar would be likely to benefit from a victory for Mrs Clinton, any rise was likely to be modest and short-lived.

“In contrast, should Republican candidate Donald Trump emerge victorious, the damage to the dollar could be both substantial and persistent.”

“What’s more, the impact could differ on a currency-by-currency basis. For with a Trump victory likely to create a dramatic ‘risk-off’ climate across assets such as stocks and corporate debt, it seems clear that the bulk of any dollar losses will be against ‘safe’ currencies such as the yen and the Swissie, and perhaps even the euro.

“In contrast the dollar could rise against ‘riskier’ currencies, especially the Mexican peso if Mr Trump prevails.”

Today sees the release of multiple UK data including manufacturing production, industrial production and inflation report readings, but all of the above will be overshadowed by sentiment surrounding the US election and position taking to mitigate risk and/or to take advantage of any move, expect a volatile day.

Who will win, the American public will decide.
Initial presidential results expected between 4-5am GMT tomorrow morning.

EUR/USD – Current Price $1.1051 (+$0.0011)

Minor FX moves only ahead of the US election today. EUR/USD started in Asia at $1.1041, and whilst a late dip to $1.1028 was witnessed yesterday, losses proved limited beyond there, with bulls once again finding some support near the $1.1030 region. A tepid recovery ensued in the pair sending it back through $1.1050. Weaker-than-expected German industrial production did not prompt much of a reaction with investors now looking ahead to US JOLTS job openings and the US presidential election. From a technical view, yesterday’s 4-week high at $1.1145 and the October 9th high at $1.1210 may offer resistance. On the downside, we target support at the October 30th high at $1.0995 followed by the October 26th high of $1.0946.

GBP/USD – Current Price $1.2436 (+$0.0040)

The GBP stalled its bearish momentum against the Greenback in Asia. This kept the pair in a tight range just shy of the $1.24 handle for the most part, before some selling interest behind the Usd gathered steam post-European open, pushing the pair to fresh highs at $1.2440 in recent trade. Looking ahead, today’s focus remains on the UK industrial and manufacturing production data due later. From a technical view, we look for resistance at yesterday’s high of $1.2528 followed by the October 6th low of $1.2602. On the downside, last Wednesday’s high at $1.2354 is our first level of support followed by Thursday’s low at $1.2298.

USD/JPY – Current Price ¥104.46 (¥0.00)

USD/JPY lost a few pips on the session, but it too had a limited range rising to a ¥104.59 high and falling to around ¥104.30 at one stage. It currently trade more or less flat at ¥104.45. Investors are now looking ahead to US JOLTS job openings and the US presidential election. From a technical view, the October 31st high at ¥105.23 and October 28th high at ¥105.53 may provide resistance while support may come in at the overnight low of ¥104.30 followed by yesterday’s low at ¥103.13.

GBP/EUR – Current Price €1.1239 (+€0.0011)

GBP/EUR has crept higher in recent trade, hitting a fresh daily high of €1.1247 after a fairly narrow trading range overnight. UK industrial and manufacturing production data will be the main focus for investors this morning following a weaker-than-expected German print ahead of the open. From a technical view, last Tuesday’s high at €1.1176 is our first level of support followed by Wednesday’s high at €1.1135. On the upside, yesterday’s high at €1.1301 and October 5th high at €1.1394 may provide resistance.

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