GBP

The risk sensitive pound finished lower on Wednesday as both US Presidential Election and Bank of England uncertainty dampened investor appetite for sterling.

The pound had started the Wednesday trading session on the front foot trading close to multi-month highs against both the euro and dollar as market sentiment was firmly risk-on amidst an expectation of an overwhelming Democratic win for Joe Biden which would see the Democrats gain a majority in the House of Representatives and Senate.

As Wednesday progressed and election results started to filter through it soon became clear that the election would be a much tighter affair than first predicted and the forecasted blue wave was wide of the mark as the Republicans were forecasted to keep hold of the Senate.

Despite the move lower, sterling remains supported and rangebound amid increasing optimism that a Brexit deal will be achieved. As things stand, talks continue to lack the progress needed to bridge key sticking points of fisheries and level playing field. However, with talks resuming in London on Sunday investors remain optimistic that both sides can overcome their differences in time for a deal to be agreed by mid-November.

Sterling was briefly lifted this morning as the Bank of England announced it would keep interest rates on hold for now but would boost quantative easing by £150 billion. The increase of Quantitive easing is usually a negative for a host currency, so it’s likely that the lack of commentary on negative interest rates, and the fact that members of the policy committee voted unanimously 9-0 to keep rates on hold, alleviated investor concerns that negative rates are close to being implemented.

USD

The dollar rallied during Wednesday trade benefitting from a flurry of safe-haven demand as market sentiment shifted to risk-off caused by the US Presidential Election dragging on without a clear victor.

Investors had anticipated that a Democratic blue wave would ensure a significant US stimulus package would be agreed, however at this stage the blue wave result seems very unlikely as the Republicans are expected to hold the Senate. Thus, making a significant spending agreement less likely.

President Donald Trump also contributed to the risk-off mood on Wednesday by raising fears of a contested election. The President made a statement early on Wednesday morning attempting to prematurely declare victory as ballots continued to be counted and called for voting to be stopped. He then went a step further claiming the ‘election was a fraud on the American people’ and mentioned that he would seek a recount in key swing state Wisconsin.

As things stand, Democrat Joe Biden holds a narrow lead. However, a contested election seems likely with potential legal action on the horizon from President Trump.

Key announcements

10:00 – EUR – Retail Sales (YoY) expected 2.8% from 3.4% previous
12:30 – GBP – Bank of England Governor Bailey’s speech
19:00 – USD – Fed Interest rate decision expected to keep rates on hold at 0.25%