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U.S Election: initial results point to a tight race

USD

Yesterday, the Dollar was down (-0.61%) and Wall Street was up as investors were eager to know who would be the next U.S President, with banks, fund managers, and investors betting against the dollar on the “blue wave” prospect. However, overnight, while the initial results point to a tight race, investors are again concerned about the path that the US economic stimulus and trade relationship with China will take. The fallout from the election will dominate today until a clear result becomes known. Therefore, macroeconomic data may be ignored for the rest of the week but is still relevant to assess the economic recovery. Today, ISH Markit will release the final versions of its Services PMIs for the US, as well as the ADP survey for October will post its employment numbers.

EUR

The EUR edged up 0.61% against the USD on Tuesday as the greenback weakened ahead of the U.S presidential elections. Early this morning, the outcome in the most critical states showed a very tight race, which has triggered a demand for safe-haven USD on the back of the uncertain U.S political environment ahead. Although the results of the U.S presidential election will take the center stage again today, IHS Markit will publish the final versions of its Services and Composite PMIs for the EU, which remain relevant as a barometer of economic health. 

GBP

Similar to EUR’s performance, the GBP jumped as much as 1.13% against the greenback on Tuesday as the USD remained under pressure ahead of the outcome of the U.S presidential elections. However, the uncertain U.S political environment forces investors to take refuge in the safe-haven USD. Later today, PM Boris Johnson is set to push fresh Covid-19 lockdown rules through the U.K. Parliament, facing down rebels in his own Conservative Party who reject the erosion of civil liberties they entail. Thus, considering that the U.K is going to lock its economy down again, the GBP could see its value drive down against the USD regardless of the U.S election result.

JPY

The Japanese Yen edged up 0.24% against the USD on Tuesday and earlier this morning, fell 0.45% in Wednesday’s Asian session, as markets began to price in the likelihood of a victory for President Donald Trump. Earlier this morning, Bank of Japan (BoJ) Governor Haruhiko Kuroda said the central bank will work closely with financial authorities to help keep currency moves stable, adding he was closely watching how the outcome of the U.S. presidential election could affect markets. Meanwhile, investors were increasingly braced for the possibility that the election results may not become clear on Wednesday.

CAD

The Loonie added to the previous day's gains and witnessed some follow-through buying for the second consecutive session on Tuesday, strengthening 0.64% against the USD. The rise was sponsored by a broadly weaker USD and a strong intraday pickup in crude oil prices, which tend to underpin demand for the commodity-linked currency CAD. Furthermore, the CAD also saw support from the investor optimism that the outcome of the U.S election would clear the way for economic stimulus. However, for today, the CAD might be weighed down as early results in the U.S presidential election showed a very tight race.

MXN

The MXN edged 1.28% up against the greenback on Tuesday amid mixed U.S Presidential election reactions and expectations. The latest PMI data, apparently, had a muted impact on the peso, with investors ignoring that the Mexican manufacturing industry is stuck in contraction. Despite rising from 42.1 in September to a seven-month high of 43.6 in October, the seasonally adjusted IHS Markit Mexico Manufacturing PMI pointed to a sharp deterioration in business conditions that were worse than any seen before the Covid-19 outbreak. The PMI has not posted above the 50.0 no-change mark for a year. For today, the rising likelihood of Trump’s re-election hurts the MXN that has been hit hardest by Trump’s trade policies.

CNY

The CNY rose 0.21% against the greenback on Tuesday and earlier this morning, closed 0.48% down in Wednesday’s Asian session, as markets began to price in the likelihood of a victory for President Donald Trump. There are no signs a second Trump term would ease policy stance towards China. The Trump administration would continue to pursue tough policies against the Asian country, pushing for tariffs and other measures meant to bring down the trade deficit.

BRL

The BRL abandoned early gains to close 0.24% down against the USD on Tuesday. The BRL rose more than 1.1% earlier in the session after the IHS Markit Manufacturing PMI report showed that the index strengthened to 66.7 in October, up from 64.9 in September, highlighting the strongest monthly improvement in the health of the sector since data collection started in February 2006. However, mixed U.S Presidential election reactions and expectations weighed on the BRL. Moreover, Minutes from Brazil's latest central bank meeting printed a more hawkish tone than its Oct. 27-28 policy statement which pointed to low-interest rates for a long time. Market participants understand that Brazil’s central bank has started to closely watch the rapid rise in the inflation rate.

Quick Insights

USD: Investors are again concerned about the path that the US economic stimulus will take

USD: Investors are again concerned about the path that the US economic stimulus will take

EUR: IHS Markit will publish the final versions of its Services and Composite PMIs

EUR: IHS Markit will publish the final versions of its Services and Composite PMIs

GBP: PM Boris Johnson is set to push fresh Covid-19 lockdown rules through the U.K. Parliament

GBP: PM Boris Johnson is set to push fresh Covid-19 lockdown rules through the U.K. Parliament

JPY: Markets began to price in the likelihood of a victory for President Donald Trump

JPY: Markets began to price in the likelihood of a victory for President Donald Trump

CAD: Strong intraday pickup in crude oil prices

CAD: Strong intraday pickup in crude oil prices

MXN: Mexican manufacturing industry is stuck in contraction

MXN: Mexican manufacturing industry is stuck in contraction

CNY: There are no signs a second Trump term would ease policy stance towards China

CNY: There are no signs a second Trump term would ease policy stance towards China

BRL: PMI’s strongest monthly improvement in the health of the manufacturing sector since 2006

BRL: PMI’s strongest monthly improvement in the health of the manufacturing sector since 2006

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