Beware volatility

Court rulings and emails

Politics was the main driver for currencies at the end of last week and over the weekend. In sterling's case it was the sovereignty of parliament, which has become a mixed blessing for Brexiteers. For the US dollar it was the FBI's volatile relationship with the democratic candidate.

A glance at the overnight strengthening of Mexico's peso against the Japanese yen reveals that something important to the presidential race took place over the weekend. The peso went up by nearly 4% and the yen is the biggest loser since Friday morning, down by -0.9% against the pound.  The trigger for all this was the FBI's admission that Hillary Clinton will not be charged with using her own email address, as looked possible a couple of weeks ago. With a major shadow lifted from Ms Clinton's campaign Mr Trump's position was seen to have worsened and the chance of trade wars and protectionism to have lessened.

In London the high court ruled on Thursday that parliament must approve activation of the Article 50 process by which Britain will leave the EU. Some, including those who had campaigned most stridently for parliament to take back control of its sovereignty, were taken aback by the decision. Investors, however, saw it as a good thing for sterling. They sent the pound higher, making it easily Thursday's top performer. It starts today up by an average of 1.3% from Thursday morning's levels.

Payrolls and interest rates

On Thursday the Bank of England contributed to sterling's well-being and on Friday the US Bureau of Labor's employment report was vaguely helpful to the dollar. The Old Lady said it had abandoned any plans for a further rate cut and Federal Reserve leaders implied that the jobs situation posed no threat to a December rate hike.

The Bank of England doubled its growth forecast for the UK economy, adding to the positive mod created by the high court's judgment on Article 50. Governor Mark Carney also spoke of accelerating inflation, further reducing the chance of a rate cut.

Friday's report of a 161k monthly increase in nonfarm payrolls fell short of the market's expectations but upward revisions to the August and September data left employment a net 30k ahead of forecast. Two Fed regional presidents and vice-chairman Stan Fischer suggested that the numbers were strong enough to support a rate increase next month. 

Countdown to the election

There are no big-ticket economic statistics on today's list. There will, however, be a last-minute flurry of opinion polls which may or may not provide a reliable guide to Tuesday's US election result. 

The current wisdom has it that President Clinton would be positive for the dollar because she would perpetuate the status quo. President Trump would inject a big dose of uncertainty and pose a threat to global trade.

The opinion polls' gap between the two is narrower than their margin of error. That means every chance of increased volatility today.