Volatility in major currencies, including Sterling, has slumped so far this week, with markets somewhat at a juncture. The Euro has managed only very small gains following the release of upwardly revised Eurozone services PMI data for October, USD/CHF has gone nowhere and AUD/USD continues to oscillate around 0.69, as it has done for the past 6-7 sessions.
US equities hit record highs last week following tentatively positive news about progress in US-China trade negotiations but history suggests that delivering on these promises will be harder, particularly when the rolling-back of import tariffs is concerned.
Moreover, the outlook for the US rates markets is arguably cloudier than it has been. The Fed has cut rates 25bp three times this year but markets had almost fully priced all moves well telegraphed by Fed officials. Fed Chairperson Powell recently hinted that rates may remain on hold for the foreseeable future, with a rate cut still more likely than a rate hike. Markets are pricing in only a further 4bp of cuts before year-end but
pricing could move either direction depending on key US macro data and broader policy developments in coming weeks.
Finally, there are still five weeks until the UK general election on 12th December – the outcome of which could have a significant bearing on whether the government can finally get a Brexit deal through parliament and under what conditions. It is arguably too early to predict with any certainty whether Prime Minister Johnson’s Conservative Party will increase its parliamentary seat numbers and command a majority. Sterling is treading water, showing little reaction to daily political news updates, with GBP/USD
almost static around 1.284 for the third consecutive session.
