US Dollar:
The US dollar is slightly higher in cautious trading as the Republicans posted strong gains in the US midterm elections. The Republican Party won control of the House of Representatives last night and it seems investors are anticipating an easing from the US Federal Reserve this evening. The pro-business Republican Party regained control of the policy-making and budget-writing US House of Rep. The Fed’s quantitative easing is expected to weigh on the dollar, send interest rates on mortgages and other securities lower and give a boost to stocks. Looking ahead, we wouldn’t be surprised if the strength of the QE trade keeps the momentum going a bit longer. The scenario that might increase the risk to the upside in asset prices and downside to the dollar comes with a Fed announcement that is very open-ended. It seems everyone is trying to put a number on the amount of QE2 to be announced. There's a lot going on and we need to get through this week to see what hap¬pens with the Republicans—how much they take: what comes out of QE2—is it a big number, s small number, gradual: and then what happens with the jobs numbers in the US on Friday!
No major data. Other News: Midterm elections.
Pound:
Sterling is little changed against the dollar and likely to trade in narrow ranges pending the Fed’s deci-sion tonight. Then attention will turn to the Bank of England’s own meeting Thursday, when it could make a de¬cision on quantitative easing. A key risk for the pound is whether the BoE will extend QE, as this may weaken the UK currency as we saw earlier in the year. The recent better than expected UK economic data seen over the last few weeks has led some analysts to believe pressure has been taken off the central bank to inject an¬other shot in the arm of the under-pressure UK economy. Against the euro, we did not fair so well, as a move in EUR/USD put the pound to the sword and we saw GBP/EUR take another turn south. Flows of funds from the buck into the single currency keep hurting the pounds position against the euro, and if we see the Fed inject more QE2 this evening, this trend in euro strength may continue. Fresh UK data released yesterday painted a mixed picture. We saw the jobs market growth hit a 10-month low in August, raising further questions about the strength of the UK job market, according to the REC survey. Going in the other direction, we saw UK shop price inflation accelerate in October even though retailers didn't pass on the full impact of increases in food prices, the BRC survey showed. Data 09.30: Services PMI expected 52.4 from 52.8.
Euro:
The single currency made gains against both sterling and the dollar yesterday in an impressive day for the euro. The single unit is holding its earlier break through $1.40 on the dollar which had defined the upper limit of the currency’s range in recent trading, encouraging momentum-oriented traders to buy into the common currency. The euro could extend its gains if the Fed announces a more aggressive program of quantitative easing than markets expect. Given Tuesday’s break it seems the market, especially momentum players, are willing to take the euro higher, especially if the FOMC gives them any reason to do that. Spain's Oct unemployment is due this morning and we could see possible comments from German FM Schaeuble in Berlin. No major data.
General:
• Japanese markets are closed due to culture day national holiday.
• General Motors is expected to sell just over $13bn of shares in its initial public offering, cutting the US governments stake while opening the door for investment.
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| GBP/USD | 1.6054 |
| GBP/EUR | 1.1423 |
| EUR/USD | 1.4036 |
| GBP/JPY | 129.49 |
| GBP/AUD | 1.6075 |
| GBP/NZD | 2.0732 |
| GBP/ZAR | 11.0358 |
| GBP/CHF | 1.5701 |
| GBP/CAD | 1.6178 |
| GBP/SGD | 2.0642 |
| GBP/THB | 47.69 |
| GBP/HKD | 12.4311 red-down; blue-up (snap shot) |
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John Paul Georgiou
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