USD takes the lead after the US elections, GBP/USD & EUR/USD hit lows
The US Presidential election has seen the USD rally strongly and has dominated global headlines – here we dissect the main FX moves.
GBP: GBP/USD had a 5-day losing streak after the US elections as the USD rallied – falling from 1.3000 to a1.2630 low. This shows how much the USD has strengthened. UK data last week was mixed, with GDP data showing a 1% increase in the third quarter, far exceeding the 0.7% expected. However, the quarter-on-quarter growth was less spectacular and Industrial and Manufacturing data both disappointed, which hit GBP.
GBP/EUR remains elevated around 1.2000 due to heavy selling of the €€.
After last month’s dovish comments, suggesting 2 rate cuts of 0.25% in November and December, the first one was delivered with an 8-1 vote by the MPC.
USA: The US Presidential election saw a huge USD rally, pushing EUR/USD down from 1.0925 to 1.0550 – an enormous move in just 7 business days. This move is unlikely to be unwound in the near future as the market remains bullish the USD.
Specific to interest rates, Mohamed El-Erian (once again) sums it up: The tyranny of excessive data dependency: At its end-July policy meeting, the Federal Reserve saw no need to cut rates. At its very next meeting, it delivered a “jumbo cut” of 50 basis points. A month after that, it cut by another 25 bps. Yesterday (comment from Friday 15th) , Fed Chair Powell said that there was no hurry to lower rates.
EURO: The EURO remains lacklustre - GBP/EUR at 1.1950, and EUR/USD hit hard. This is despite the EU Commission growth forecasts showing growth picking up:
Eurozone growth: 0.8% in 2024
1.3% in 2025
1.6% in 2026
This is despite the very poor forecasts for Germany!
CAD: A weak performer and will not be helped by expectations of a further 50bp interest rate cut at the next Central Bank meeting. USD/CAD has moved from 1.3450 to 1.4050 since the end of September.
China: As mentioned in our last newsletter, China’s slowdown has international repercussions, and domestic policy is shifting towards increasing and encouraging internal growth and support. Retail Sales data released on Friday showed a 4.8% increase from October, the strongest growth since February. However, Industrial Output data was lower than forecast at 5.3% - continuing a downward trend.