6th November 2018 Market Update
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🇺🇸 USD – Today, the most significant market mover is the US mid-term elections for which there remains a lot of expectation that the Democrats will regain control of the House of Representatives while the Republicans are expected to hold the Senate. Secure seats aside, within the House – there are approximately 45 Republican seats that could go either way with roughly 3 Democrat seats at risk. For the Senate, 4 Republican seats are at risk of going to the Democrats, with 6 Democrat seats having the potential to switch from blue to red. With all of this uncertainty, the Dollar has remained relatively rangebound as the market appears to be favouring caution ahead of election day; as a reminder – a Republican win overall could be more Dollar positive, while a Democrat win could be more Dollar negative. More generally, investors seem unwilling to rotate away from the Dollar as the US mid-terms could deliver some surprise Dollar strength; US rates are likely to move higher; and there is a chance, albeit a slim one – that a meaningful US-China trade deal could be agreed by the end of December.
🇬🇧 GBP – Continued Brexit optimism has helped move Sterling to two-week highs as the possibility of a deal by the end of the year is currently being mooted. Looking ahead today, PM Theresa May is trying to pitch another make-or-break deal to her cabinet and any additional news this week that the EU would hold a Brexit summit in November would be greeted positively. On the other hand, we have UK trade secretary Liam Fox claiming that there are still a number of Brexit issues that need to be dealt with and it is currently impossible to say if a deal can be reached, either this month or next. The fact these comments had little say on the upward Sterling move yesterday – it seems clear that the market is more willing to take on board positive Brexit news, while placing less emphasis on bad news. Given that there is still a great deal that needs to be sorted out, not least of all the navigation of any deal through Parliament; if we do not see any significant progress in November – we could well see a big Sterling move down, despite all of the aforementioned positivity.
🇪🇺 EUR – We are continuing to see the Italian budget take Eurozone headlines as late last night, Eurozone finance ministers once again called on Italy to change its 2019 budget to conform with EU rules before the November 13th deadline next week; in response Italy maintained that their budget would not change. While this back and forth is all getting a little repetitive, some fresh news out of the ECB yesterday indicated that they may need to reintroduce TLTROs (Targeted longer-term refinancing operations) in 2019 to reduce refinancing pressures, particularly for Italian banks. If true, this would be considered another hammer blow to ECB plans to end quantitative easing and reintroduce interest rates in early 2019. Saying that, yesterday there was some good data out of Germany where we saw an unexpected increase in Germany factory orders for September which has helped ease the concerns around the slowdown in Europe’s largest economy.
USD: Midterms are the focus today as voters have their first chance to share what they think following two years of President Trump;
GBP: Sterling has begun a strong march upwards following a series of positive Brexit headlines;
EUR: Positive German data has little impact as a result of continued Italian Budgetary tensions.
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