Written by Convera’s Market Insights team
Piling into Trump trades
George Vessey – Lead FX Strategist
The extension of so-called Trump trades is a result of investors backing President-elect Donald Trump will hit the ground running this time round and implement his policies sooner than he did in his previous term. The US dollar continues to stretch to fresh multi-month highs against a basket of currencies, equities are soaring and crypto is staging a record-breaking rally as a result.
Trump’s policies of a trade war in which the US is less exposed and more-fiscally stimulative policies, are expected to boost US near-term economic outperformance vs. its G10 peers further. Economic momentum has shifted back in favour of the US, motivating yet another hawkish repricing of the Fed’s cutting cycle and this is compellingly dollar positive, both via tariff and fiscal-monetary policy mix channels. But in a sign that investors are willing to take on risks, even with more protectionism in the pipeline, we’re seeing equities continue to rally to all-time highs and more notably, the cryptocurrency industry is on a tear, with several digital currencies climbing over 100% this month.
Bitcoin’s record-breaking rally took the token to a fresh record high past $89,000, helping to lift the overall value of the crypto market above its pandemic-era peak. Some are projecting Bitcoin will reach $100,000 by the end of the year.
A long list of tail risks
Boris Kovacevic – Global Macro Strategist
Global equity benchmarks are rising, and volatility indices are falling but the euro continues to have a tough time attracting buyers. The Republicans in the United States are closing in on the trifecta – winning the White House and both chambers of Congress – and the prospects of rate cuts and deregulation are leading US equities to outperform their global peers. Tariff increases under Trump on the other hand are pushing investors to the US dollar and away from trade sensitive currencies like the euro.
On the domestic front, expectations of another 25-basis point rate decrease by the European Central Bank in December and political turmoil in Germany are adding headwinds for the continents assets. EUR/USD is therefore hit twice by the simultaneous expectation of an underperforming Europe and excelling US economy. EUR/USD is on track for its second monthly decline in a row and fell below the $1.07 mark. The currency pair is hovering near 4 ½ month lows as traders gauge how much downside potential remains.
While not an immediate threat, rising energy prices could be put on the list of potential risks going into the winter period. Gas prices surged to €44 per megawatt-hour, setting a record for the year. A cold weather front and falling storage capacity has pushed demand for protecting against further energy price rises higher. This is something to watch over the coming weeks. For this week, the ZEW sentiment index is the only release on the agenda in Europe. However, the upcoming Fed speakers today and tomorrow and the US CPI report on Wednesday will be more important for the direction of the euro.
Pound tumbles after mixed jobs report
George Vessey – Lead FX Strategist
GBP/USD has tumbled to a 13-week low, taking out its support levels found at its 200-day and 200-week moving averages in the lower realms of $1.28. Although UK wages data came in slightly hotter than expected, the unemployment rate also rose to 4.3% from July to September 2024, up from 4% in the previous three-month period and exceeding the expected 4.1%.
In the market’s initial reaction, the two measures seemed to largely balance each other out. However, sterling has succumbed to broad-based selling pressure, down against all of its G10 peers at the European open. Despite swap differentials and the risk rally usually being bullish GBP drivers, sterling appears more sensitive to the US story. Nominal yields are likely to be more important going forward, with the risk being skewed in favour of the US dollar.
It should be noted though that the UK is likely less exposed to direct tariff risks than the Eurozone, given its trade deficit in goods with the US. As such, this arguably opens up a positive tailwind for the pound versus the euro. GBP/EUR remains above the €1.20 mark this morning after pulling back from over 2-years highs yesterday.
Sterling retreats across the board
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: November 11-15
All times are in GMT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
