Sterling
The Pound performed well again on Friday as Donald Trump’s election victory continued to support demand for the UK currency. The hope is that Trump, a vocal fan of ‘Brexit’, will be more relaxed in UK-US trade discussions than if Democratic candidate Hillary Clinton had been elected. UK Prime Minister Theresa May has already been invited across the Atlantic for trade discussions and analysts believe there is a possibility that the PM may be able to strike some exclusive deals. Indeed, Trump has stated he intends to maintain the ‘special relationship’ between Britain and America.
Sterling has also benefitted slightly from expectations that Trump’s debt-backed stimulus plans could bolster global inflationary trends, and therefore persuade the Bank of England to row back on its own monetary easing measures. On a trade-weighted basis, Sterling’s 4% appreciation over the last fortnight is its biggest two-week gain for over eight years.
Euro
The Pound to Euro exchange rate rose by around a cent to hit a new seven-week high on Friday as ‘Brexit’ concerns took a backseat to fears that European populist political parties could be galvanised by Trump’s surprise election victory. An upcoming referendum in Italy plus elections next year in France and Germany have come into focus, with political commentators worried that a wave of right-wing populism could sweep across the continent.
Political uncertainty is weighing on the single currency, while the Pound is benefitting from the belief that if Trump downgrades NATO or the European security umbrella then Britain’s relatively strong military intelligence assets could become an important piece of leverage in the UK government’s post-‘Brexit’ trade negotiations with the European Union.
US Dollar
‘Cable’ rallied by around a cent on Friday morning to hit a new five-week high but Sterling was unable to hold onto its gains through the weekend.
The Pound to US Dollar exchange rate is now trading around the same level as before the ‘flash crash’ of October 7. A less dovish BoE, combined with hopes of Downing Street striking a positive trade agreement with Trump’s White House have helped to send Sterling rallying across the board. The ‘Greenback’, for its part, has broadly benefitted from Trump’s victory as the implications for short-term growth, inflation and interest rates are positive. However, there is potential for the US Dollar to struggle if Trump’s more divisive campaign pledges come to pass – such as building a wall on the US boarder with Mexico or sparking a trade tariff war with China.
Canadian Dollar
The Pound to Canadian Dollar exchange rate jumped a cent to reach a new six-week high on Friday as anxieties surrounding Trump’s plans to arrange new trade deals applied significant downward pressure to the ‘Loonie’. Canada sells 79% of its exports to the US, so it stands to reason that demand for the Canadian Dollar could easily suffer until investors get a better idea of just how serious Trump’s convictions on applying protectionist trade tariffs are.
Australian Dollar
Sterling increased in value by around two cents versus the Australian Dollar on Friday, reaching its highest level in over a month. The ‘Aussie’ found itself depreciating on fears that Trump’s inflationary policies could prompt the Federal Reserve to hike interest rates faster than initially anticipated over the next few years. The prospect of less global trade and tighter monetary policy in the world’s largest economy weighed on risk sentiment and dragged the ‘Aussie’ lower.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate struck a five-week high on Friday after Sterling claimed a massive three-cent daily gain. In addition to the impact of Trump’s victory, the ‘Kiwi’ Dollar was also damaged by news that a magnitude 7.5 earthquake hit North Canterbury, killing two people, damaging buildings and triggering warnings of a tsunami.
Data Released
10:00 EUR Eurozone Industrial Production w.d.a. (YoY) (SEP) Medium 1.8%