US Election the Main Risk, BoE to Boost QE



  • Resurgent USD Pressures GBP/USD
  • US Election the Main Risk, BoE to Boost QE

Resurgent USD Pressures GBP/USD

A marginal drop in GBP/USD to close week with losses stemming from a resurgence in dollar demand as global uncertainties pick-up. Idiosyncratic factors had been somewhat muted for GBP and I for one have rather enjoyed the small amount of headlines regarding Brexit as negotiations are in the tunnel phase. That said, there had been some reports signalling that progress had been made with both parties inching towards a possible early November agreement. In turn, this has helped EUR/GBP crack 0.90 with fresh lockdown measures in France and Germany also adding to the downside, thus the bias is to fade rallies in the cross. Next week, it is expected that both EU’s Barnier and UK’s Frost will come out of the negotiating tunnel on November 3rd and likely provide an update on the latest state of play.

of clients are net long.

of clients are net short.

Change in Longs Shorts OI
Daily 19% 16% 17%
Weekly -9% -2% -5%

US Election the Main Risk, BoE to Boost QE

The obvious risk in the very short-term is the US election, in which the outcome will guide sentiment, thus while there are key domestic factors for the UK, taking the specific events in isolation, volatility will be dwarfed by the election. That said, the Bank of England will be on tap, where expectations are for an increase in QE by £100bln. At the current purchase rate, a £100bln increase can see gilts until H1 2021. However, focus will also be on whether the committee has lowered the bar any further for taking rates sub-zero.

Gilt purchases

Lockdown Measures in London is a Question of When Not If

Another factor that GBP has to contend with is the continued rise in coronavirus cases with PM Johnson on under increasing pressure to implement fresh lockdown measures. In turn, with the r-rate in the capital showing little signs of easing, further measures in London is a question of when, not if.

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