GBP

Sterling traded within a cent range against the Dollar at the end of last week, absence of news around ongoing Brexit trade negotiations left currency markets reluctant to make big bets either way on the currency. Sterling did however manage to reach a two-month high against an under performing and under pressure Euro last week when the bloc’s major continental economies returned to lockdown measures. Although a second lockdown in the UK now threatens to weigh on Sterling this week and could send the Pound-to-Euro rate back toward the bottom end of its recent range. The UK lockdown is currently set to start on Thursday 5 November and finish on Wednesday 2 December and will see all supposedly non-essential businesses forced to close again.

Britain resumed talks with the European Union over a post-Brexit trade agreement last week and these talks are set to continue this week. Fisheries and rules governing state subsidies to business are still the two critical issues in the negotiations yet to be resolved.

Thursday’s Bank of England monetary policy meeting will be watched keenly in light of the upcoming national shutdown. Analysts expect as much as £100bn to be added to the current £745bn quantitative easing programme, but will be focused on any further comments on the BoE’s newfound interest in negative interest rates.

USD

The safe-haven Dollar rose to a four-week high on Friday against G10 currencies, ahead of this week’s US presidential election. The greenback posted its largest weekly percentage gain since late September, with investors supporting the Dollar due to fears of a contested election and the economic impact of renewed lockdowns in France, Germany and some regions of Spain.

Friday’s economic data, meanwhile, which showed US consumer spending exceeding forecasts, had little impact on the currency market.

Polling day for the presidential election is Tuesday and currency markets will begin to have an idea early on Wednesday of whether the currently predicted wave of support in favour of the opposition Democratic Party candidate Joe Biden has materialised. The consensus view is that this scenario will weaken the Dollar and support stock markets, which would normally be expected to lift Sterling. A Biden presidency could make a UK-US trade deal less likely which is potentially a bearish outcome for the Pound.

Another potential complication is President Donald Trump’s Republican Party closing the gap with his rival in some states as the ballot approaches, the probability of a contested election could be rising. A contested election is the last outcome that investors would want to see given that it could lead to weeks of uncertainty and fighting in the Supreme Court so if investors unease on the outcome of the vote grows large enough it could add to Sterling’s vulnerability this week. A surprise victory by the incumbent President Trump is expected to result in a stronger Dollar, although for Brexit-related reasons it might also be the more favourable outcome for the Pound-to-Euro rate.

Key announcements

• 15.00 USA ISM Manufacturing PMI expected at 55.6 from 55.4 previous