November 9, 2022

“The greenback remained under pressure overnight as it dropped approximately 0.7% against several major currencies, including the euro, sterling, and yen, on the back of a firmer tone to the risk appetite. For the time being, the dollar stabilised, awaiting clarity on the US midterm election results. A potential Republican victory and a government deadlock, which could result in a rise in equities, would put further pressure on the US dollar.” 

Tim Hallinan – Trading Director 

Main Headlines 

Control of Congress was up for grabs early this morning after the US midterm elections, with many of the most competitive races uncalled, leaving it unclear whether Republicans would crack Democrats’ tenuous hold on power. Meanwhile, former President Donald Trump has spent months teasing a 2024 presidential run, suggesting to supporters on the eve of yesterday’s midterm elections that he would throw his hat into the ring as soon as next week. Speaking at a rally in Ohio the night before polls opened for the midterms, Mr Trump said: “I’m going to be making a very big announcement on Tuesday, November 15 at Mar-a-Lago in Palm Beach”. While the former president did not provide further details about the announcement, many have been predicting that he could announce a run for 2024 to benefit from the potential Republican gains in the midterm elections. 

 Covid lockdowns and the Bank of England’s pandemic-era money printing programme are partly to blame for the cost of living crisis, the central bank’s chief economist has suggested. Huw Pill, who took the influential role on Threadneedle Street last year, said gas prices were the largest driver, adding around 4 percentage points to inflation, which is at a 40-year high of 10.1 per cent. But even before Russia’s invasion of Ukraine in February, which caused gas prices to spike, inflation was already at 6.2 per cent – more than three times the Bank’s target of 2 per cent. Speaking to the House of Lords economic affairs committee, Pill admitted the Bank played a part in driving up inflation through quantitative easing, which pumped £450billion into the economy during 2020.  

GBP 

Sterling is stronger against the dollar and weaker against euro this morning. Older retirees are being urged to review their retirement strategies as market volatility causes large losses for many of occupational pension plan savers. Millions of people in the UK save in occupational pension funds, where the amount of potential retirement pot depends on factors including the amount paid in and the investment performance of the fund. But the average balanced pension fund is down a little more than 11 percent this year, according to FE Analytics, a research group. His comments come amid a nationwide campaign to encourage savers to pay more attention to their pensions 

 EUR 

Euro is well bid against most major currencies overnight. European Union negotiators yesterday evening struck a deal for binding emissions reduction targets for sectors including road transport, agriculture, buildings, and waste. The agreement struck between members of the European Parliament and negotiators from the European Council, plans for an EU-level greenhouse gas emission reduction target of 40% compared to 2005 for the sectors not covered by the EU Emissions Trading System (EU-ETS). These include road and domestic maritime transport, buildings, agriculture, waste, and small industries. They are collectively responsible for about 60% of the bloc’s greenhouse gas emissions.  

USD 

The dollar is weaker than most major currencies in the early morning trade. The US dollar edged higher in early European trade today, stabilizing after overnight losses amid uncertainty from the US midterm elections and ahead of key inflation data later this week. The results from the US midterm elections are still uncertain, with the Republicans seemingly heading towards taking control of the House of Representatives. However, the Senate race looks too close to call at this point with many of the most competitive races still undecided. The dollar has been under downward pressure of late from expectations that the Fed will ease back from its aggressive hiking cycle shortly, potentially as early as December.  

Markets 

European markets were slightly lower this morning as global investors await the results of the US midterm elections. The pan-European Stoxx 600 was down 0.4% in early trade, with travel and leisure stocks shedding 1% as most sectors and major bourses slid into the red. US equities pushed higher in late trading despite cautious sentiment ahead of high-impact events in the coming days. At the market close, the S&P 500 advanced 0.96% to 3,807, bolstered by a strong rally in telecommunication and energy stocks. Meanwhile, the Nasdaq 100 jumped 1.11% to 10,977, but higher yields across the curve appeared to cap its gains. 

Main Economic Data/Central Banks/Government (All Times CET) 

9:30 a.m.: Riksbank Financial Stability Report
10:00 a.m.: Norges Bank Financial Stability Report
11:00 a.m.: ECB’s Elderson speaks
1:00 p.m.: US mortgage applications
2:00 p.m.: BOE’s Haskel speaks4:00 p.m.: US wholesale inventories
5:00 p.m.: Russia Oct. CPI
5:00 p.m.: US Fed’s Barkin speaks
5:30 p.m.: BOE’s Cunliffe speaks
Poland rate announcement
COP27 in Egypt through Nov. 18 

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