Equity markets skyrocketed on the growing expectations that Joe Biden is to become the next US president. After the announcement rally proceeds and the US dollar continues to tumble.
The market sentiment continues to improve as the US election uncertainty evaporates. Risky currencies lead the way with the New Zealand and Australian dollar appreciating 0.5% during the Asia trading. The AUD/USD pair has touched 0.73 boundary and trades at the highest levels in 7 weeks. The EUR/USD exchange rate approaches 1.19, and the USD/JPY pair hovers around 103.50. The yen is tilted to the downside. In contrast, the cable (the GBP/USD) trades above 1.3150, and it might see some further gains as the EU – UK trade negotiations enter a final stage.
Blue wave still possible, yet unlikely
Joe Biden clinched the US presidential race, but a Republican-controlled Senate will somewhat constrain his political agenda. Despite all the political argy-bargy, both sides agree that a fiscal stimulus is needed. Consequently, such an outcome will result in a sizable COVID-19 package. Other points on Biden’s agenda (taxes, regulations, a forced division of tech giants) look rather hard to accomplish. The political gridlock is to persist. At least for now, because the senate races will not be settled until January for both mandates representing Georgia. The Democrats would need to secure both, and in such a case, the vice president has the deciding vote.
The sterling set to shine
The recent GBP/USD upsurge was driven predominantly by the broader dollar decline and to a lesser degree, by the Bank of England decision to extend QE without lowering interest rates into the negative territory. The Brexit negotiations have entered the final stage as this week sees the November 15th deadline. Bloomberg reports that major differences still need to be tackled, yet the final outcome should be GBP – positive. Boris Johnson might be forced to close the deal instead given the rapidly worsening growth outlook after reintroduction of the lockdown and the Tories losing ground in the polls.
Conotoxia research team