Currency Note

Yippee, polling day is finally here!

By Smart Currency November 8th, 2016

US elections to rock markets?

Assuming no last minute drama as America queues at the polling booths, you can expect a day of anticipation in the currency markets as we await the result. Polling stations don’t close until the early hours tomorrow UK time but we should know who the new President is soon after. Europe suffered the drip, drip of negative data yesterday but it was all pretty small-scale stuff when compared to a Trump win which should see the euro strengthen. A Clinton win should see the US dollar strengthen across the board.

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UK house prices low and presidential election

It was no surprise on Monday morning to see Sterling weaker against the US dollar after the weekend’s announcement from the FBI surrounding the Hilary Clinton email saga. The announcement so close to the election could be pivotal ahead of voting today. Last week, the US dollar weakened against all the major as speculation grew that an upset was on the cards.

Meanwhile, annual house price inflation in the UK is now at its lowest rate since July 2013, according to Britain’s largest mortgage lender, the Halifax. It fell to 5.2% in the year, down from a peak earlier in the year of 10%; however, given the economic and political uncertainty it wasn’t much of a surprise.

This morning UK manufacturing is due to hit the wires; but without doubt the focus will be on the US Presidential Election between Clinton and Trump. A result could be determined as early as 4am GMT. Enhanced volatility is expected throughout the late afternoon and evening as exit poll results and official results feed through.

Euro quietly depressed

Yesterday saw a quiet day in the Eurozone, nevertheless, the data that was released was generally negative. German factory orders and Spanish industrial production both came out worse than expected, the Eurozone retail Purchasing Managers Index fell compared to last month’s data, and EU retail sales were mixed. A short-term French bond sale produced gilts with a negative yield – showing that investors have both a negative outlook on EU inflation and assets in general.

Today sees German Industrial Production and Trade Balance figures, the French Government Budget and Trade Balance and the release of the EU’s ECOFIN meeting notes. However, the overriding focus of the day will be the US election late this evening and early tomorrow morning. A victory for Hilary Clinton (the marginally more likely winning candidate) would most likely see investors flock to buy US assets (be they Equities, Corporate Debt, Treasuries) which should see the dollar strengthen against other currencies, including the euro. A Trump victory in the short-term would likely see the opposite, with demand for ‘safe-haven’ assets (gold, Japanese yen or the Swiss franc) increasing, but also other assets – which would create upward pressure on the euro against the dollar. Whatever the result, we should expect a busy day for currencies.

Dollar poised for the presidential election

The dollar is likely to be fairly sensitive going into today’s election and may continue to be until we know the result (we have had delays in recent elections and this one promises to be close – so who really knows when the result will emerge). Stock markets have already shown a positive increase due to Hillary Clinton being cleared of any criminality, and with the final polls still putting her ahead by just a few points, it bodes well a stronger dollar going into tomorrow.

This is not just about the rhetoric of Donald Trump: historically, the US dollar has reacted more positively to a Democrat win over a Republican win. A victory for Hillary Clinton should restore confidence for investors and could have a positive impact on the dollar as it would signal a continuation of existing policy. Conversely, a victory for Donald Trump could cause an irrational movement in the market.

Other than that, data in the US is fairly quiet this week.

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