GBP

Sterling had a mixed day on Tuesday as it was mainly affected by the political events in the US. The currency remains highly volatile as the US election hangs in the balance and ignored the fact that the UK and EU have so far failed to reach an agreement on three sticking points in Brexit talks.

The Brexit impasse is yet to be broken as any breakthrough in securing a deal is still some way off, but investors do believe a trade deal will be reached by the end of this month. This limits sterling’s gains against the euro as Brexit is weighing on the currency pair.

Sterling’s overnight implied volatility rose to 19% which is the highest level since March. Further volatility is likely to be seen as the US votes are still being counted.

USD

The dollar remains highly volatile as the US election weighs on the currency. The dollar weakened as polls showed Joe Biden was leading at the start but then started to strengthen as soon as Donald Trump had won key states including Florida and Ohio. Investors will now look at whether he can retain Rust Belt states which include Michigan, Wisconsin and Pennsylvania, states that sent Trump to the White House in 2016.

As per the latest tally for the 2020 US elections, President Donald Trump has gained around 150 seats but his Democratic rival Joe Biden is far ahead with more than 220. Although final results are not likely to be known before Friday, the recently impressive run by the Democrats keeps blue wave hope on the table.

The odds of a clean sweep for the Democrats is starting to diminish with results showing a very tight race. This reduces the likelihood of a large stimulus programme being agreed in the first days of a Biden administration, which would hurt the US dollar.

Key announcements

13:15 – USD – ADP non-farm employment change – Forecast at 650k from previous 749k
15:00 – USD – ISM services PMI – Forecast at 57.4 from previous 57.8