Sterling stuck close to its recent highs against the euro and US dollar on Monday to open what is set to be a very consequential week in currency markets.
Millions of Americans will cast their votes today in the midterms. His name may not be on the ballot, but Donald Trump has cast a long shadow over this election cycle. The president is hoping a blitz of appearances in swing states will help the Republicans maintain at least partial control of Congress. Given the number of tight races, it may take several days for us to know for certain who has prevailed.
The key battlegrounds are almost all in the Senate and feature a handful of historically Republican states (e.g. Texas, Kansas, South Carolina) that have not always been in play for the Democrats. If they can flip a couple of these seats and hang on in close calls in Maine and Michigan, they will be able to wield much more scrutiny over Trump’s domestic agenda.
With the cost of living set to feature heavily, Monday brought good news in the form of a 7% fall in the price of brent crude. Hopes for a diplomatic solution to the war in the Middle East helped drive that move, although there are still concerns of an escalation once the midterms are behind us.
It had looked as though the recent wobble in tech stocks had subsided yesterday, only for the mood to turn negative into the evening. The tech-heavy Nasdaq index fell by over 1%, with futures markets implying another fall at the open this afternoon.
Monday’s US data offered competing signals. Manufacturing activity grew more strongly than expected in October, although price pressures remained elevated. Construction spending suffered its steepest monthly fall since the early months of the pandemic, underlining that higher costs are still weighing on parts of the economy.
GBP: Pricing in a hike
Currency markets seem to have collectively assumed the Bank of England will increase interest rates from 3.75% to 4% at its meeting on Thursday. With that move already heavily anticipated, the pound’s reaction may depend more on whether policymakers suggest further increases are likely, barring a shock pause.GBP/USD: the past year
EUR: More data on the horizon
The euro continued to stabilise from its recent wobbles on Monday. Eurozone manufacturing remained firmly in growth territory during October, but Wednesday’s eurozone inflation figures are likely to be more influential for the single currency.GBP/EUR: the past year
USD: The calm before the storm
Monday was a pretty uneventful opening to the week for the US dollar. US job openings and factory orders are due today to kick off a busy week. The big uncertainty at present is whether the result of the midterm elections changes the balance of power in Washington, and therefore the outlook for economic policy.USD/GBP: the past year
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