It’s US election week – FX markets are braced for the outcome

4 November 2024

Weekly Market Headlines:

• Sterling exchange rates recover following budget. The pound has recovered into the weekend following a more volatile week for the UK financial markets. Against the dollar, we saw a 1.5% shift from the high to the low. Rates against the euro moved closer to 1.8% as the financial and currency markets digested the implications of the UK budget.

The OBR (Office for Budget Responsibility) set out their latest growth forecasts for the UK which anticipate that growth will peak at 2% next year before falling back to around 1.5% in 2029. This clashes with Labour’s key election mandate to grow the economy and could affect the future strength of the pound against several major currencies.

• One day until hotly anticipated US election. On Tuesday 5th November, American’s will head to the polls for the latest US presidential election. Current polls and odds suggest the contest will be closely fought between Kamala Harris and Donald Trump. USD to EUR is the most traded currency pair globally and the dollar equates to 60% of global FX so the result has implications for the wider global economy. A close race and prolonged wait for results could lead to a period of increased market volatility.
• Bank of England and Federal Reserve set out interest rates. Thursday will see the latest decision on interest rates from the US and UK. The Bank of England are widely expected to cut UK interest rates to 4.75% and the US Federal reserve are expected to cut US interest rates to 4.5%. US jobs data disappointed on Friday with Non-farm payroll data confirming 12,000 new jobs vs expectations of 113,000.

Both interest rate moves have been heavily anticipated for the last couple of weeks, but the markets will be looking to decipher any suggestion on what happens next. The OBR’s inflation forecasts released last week; suggest UK inflation will remain above the Bank of England’s target for much of Kier Starmer’s premiership.

Higher inflation could lead to a stronger pound as it means the Bank of England may peal back some of the rate cuts planned for the next couple of months. GBP to EUR and GBP to USD could recover some of the ground lost last week if we see a shift in interest rates expectations.

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What events might move exchange rates this week?

GBP

• Thurs: Bank of England interest rate cuts.

EUR

• Weds: President Lagarde speech.
• Thurs: Eurozone retail sales

USD

• Tues: US election
• Thurs: Federal Reserve interest rate cuts.