USD

The dollar sank to its lowest level in over two months against a basket of peer currencies on Friday, as vote counting for the contentious US election slowly moved toward a divided government, investors predicted more losses for the currency.

Investors and financial executives took a big sigh of relief on Saturday after major networks declared Democrat Joe Biden winner of the US presidential election, offering some certainty after days of conflicting reports about who might take the White House in January.

Major US stock indexes registered their biggest weekly gains since April this week, as investors bet Biden would win and Republicans would hold onto the Senate. That scenario would create a steadier hand in the Oval Office and a Congress that would check left-leaning impulses on taxes or regulations that could harm companies and investors.

However Republicans have already filed several lawsuits over ballot counting and Trump said his campaign will file more. The litigation could drag out election proceedings. This could mean that we have possibly seen the majority of dollar weakness for now until all the court proceedings are dealt with but focus also now turns to the Senate, which remains undecided ahead of two runoff elections in Georgia on January 5th. The significance of those races, which could potentially end up with the Democrats controlling all three, the White House, Senate and House of Representatives. This means January is the next date for major dollar volatility.

GBP

The pound is likely to remain under pressure again this week as the focus goes back to the Brexit talks. The election result across the pond puts greater emphasis on the UK striking a trade deal now that new president elect is known to have a negative view of Brexit making any new trade deal with the US more difficult.

Prime Minister Boris Johnson congratulated the challenger this weekend, but Biden could increase pressure on the UK to finalise a trade deal with the EU. That prospect is likely helping dampen downside risks for the pound as it could be viewed that now Trump will be out of office, Boris Johnson has no alternative then to strike a deal with the EU. With the UK economic fundamentals also looking weak due to the COVID pandemic, many think the UK cannot afford not to strike a deal.

Key data for the pound this week will be Tuesday’s Jobs number and Thursdays GDP data.

Key announcements

• 11.35 – Bank of England Governor Bailey speaks