EUR crushed, USD awaiting election results
EURO: Under pressure thanks to new lockdown measures across the continent. Coming one day after these new measures were imposed, yesterday saw the ECB rate decision and Press Conference. ECB President Christine Lagarde painted a gloomy picture of the Eurozone economy, and acknowledged the link between Covid, policy and the economy.
EUR/USD was sent crashing to recent lows under 1.1700, and GBP/EUR climbed through 1.1050 despite GBP also being under pressure. For the EUR, next moves by the common currency depend on virus figures – and if they result in more restrictions or a gradual return to normality.
What’s next for the EUR? Most commentators expect more monetary easing to be announced in December by the ECB. However, let’s face facts, if individual countries are forced to close all or part of their economies, all that is left to support them is fiscal policy, which the ECB is there to encourage and support.
GBP: Until Brexit becomes clear, the market is unwilling to take positions and provide liquidity in GBP, which is why the average rate for 2 weeks seems unchanged, but inter-day volatility is high. GBP/USD hit recent lows (but this is due to USD strength) near 1.2900 and GBP/EUR remains near recent highs at 1.1020. There has been plenty of noise, but nothing definitive, leaving GBP treading water, bullied by other currency moves.
USD: An enormous increase in Q3 GDP was announced yesterday (the 33.1% quarterly GDP expansion was the largest in history), but coming after the last 6months dire performance, the boost to the USD was muted. Key quotes from Yohay Elam below, capture the mood:
“The best quarter in history – following the worst one. GDP jumped by an annualized rate of 33.1%, above expectations. That included a surge of 40.7% in personal consumption, a core component of the economy. Business spending is up over 23% after crashing 27%.”
“In quarterly terms, the world's largest economy fell by -10.1% in the first half of the year and now rose by 7.4%. That means that there is still some 3% to reach pre-pandemic levels – and more to reach the levels of activity had the economy continued growing at its moderate 2-2.5% pace.”
What is next for the USD? The election result, that’s it. It will dominate USD moves, and we will know more earl next week. It will be VERY negative for the $$ if aa Biden victory is marginal, and Trump disputes it, prompting a long, drawn-out dispute.