Pound Sterling opened the day at the top of the leaderboard but has since retreated as markets position themselves for potential volatility surrounding the release of US presidential election results.
- Pound to Euro exchange rate today: 1.1199, day's best rate: 1.1250
- Pound to Dollar exchange rate today: 1.2370, day's best rate: 1.2440
- Euro to Dollar exchange rate today: 1.1047, day's best rate: 1.1067
The grind through US election day finds foreign exchange markets little changed.
Caution reigns with markets mindful of another big vote that didn’t quite go as many had predicted.
Of course, that was Britain’s vote in June to exit the European Union that rocked global markets and sent the pound into a nosedive to three-decade lows.
"In a close contest, the market is generally betting on a win for Hillary Clinton. However, should Donald Trump pull off an upset it could risk a setback for U.S. assets, like the Dollar and stocks, given uncertainty about the Republican nominee’s policies on immigration and trade," says Joe Manimbo, an analyst at Western Union.
A Trump victory will likely benefit the Euro against both the Pound and US Dollar.
However, we don't believe the market has full absorbed a Clinton win therefore there is still ample space for a strong US Dollar rally against the Euro and Pound. The Pound could benefit against the Euro on such an outcome, based on recent market action.
"Once the winner is determined, the market reaction could be swift and volatile, tending to bode positive for the dollar if Mrs. Clinton should win, or negative if Mr. Trump should prevail," says Manimbo.
"We expect sideways trading ahead of the US election result, although the risk is that the USD builds on its short term momentum. Support in the 1.2340-1.2270 region is likely to slow the decline, while 1.2500/50 (and certainly 1.2645/95) resistance should cap rallies," says technical strategist Robin Wilkin at Lloyds Bank Commercial Banking.
Medium-term, Wilkin has been looking for a wide choppy range – similar to the summer - to develop. So far, that has been the case.
"Longer term the drop to 1.1491 suggests that the decline from the ~1.72 highs set back in 2014 is ongoing and still risks another move lower before a more significant base develops," says Wilkin.
GBP was the best performing currency in the London morning helped partly by the release of official Industrial Production and Manufacturing Production data for September.
The headline month-on-month Manufacturing Production data showed growth of 0.6%, ahead of forecasts for 0.4%.
Annualised, growth in the sector now stands at 0.2%.
Month-on-month Industrial Production data did disappoint however by showing a decline of 0.4%, analysts had forecast growth of 0.1%.
While data has often counted little for Sterling of late the month of November has finally seen the UK currency respond to data releases so there is a chance of some currency movement here.
“Today’s above expectations manufacturing figures will give Theresa May some reason to cheer. Sterling’s sharp decline in recent weeks appears to be providing a much needed fillip for the industry, and May will have been buoyed by the news that Nissan will continue production at its Sunderland factory," says Dennis de Jong, Managing Director at UFX.com.
Sterling trades in touch of recent highs made against both the Euro and Dollar following the release.
More Gains in GBP Still Possible Suggest Risk Reversals
Can Sterling extend the November recovery against the Dollar and Euro?
The answer is a guarded yes says Kathleen Brooks at City Index who has turned to the options markets for guidance on potential direction from here.
Brooks cites GBP/USD’s risk reversals on the options market as signalling the potential for further recovery.
Studying risk reversals can be a useful way to gauge how market participants are betting on a currency move.
Risk reversals in the FX market measures the difference in volatility between call and put options.
"There has been a positive rise in the risk reversal for GBPUSD across time frames in recent days, this means that the volatility of calls has risen at a faster pace than the volatility of puts, which suggests that the market is betting on a currency rise, or in the case of the Pound, a recovery," says Brooks.
Euro versus the Pound: Outlook Neutralised
Turning to a more detailed analysis of the Pound's prospects against the Euro we hear that more sideways action could be on the cards.
EUR/GBP last week eroded the 5 month uptrend, and has sold off to the 50% retracement of the most recent leg higher (at 0.8868).
"EUR/GBP is attempting to stabilise we suspect at the 50% retracement of the most recent leg higher (at 0.8868). The recent break of the uptrend has neutralised the immediate outlook as the near term risk has shifted to consolidation and we unable to rule out some slippage towards the 0.8724 August high and the 55 day ma at 0.8730 – but we look for this to hold," says Karen Jones at Commerzbank in London.
Jones spots initial resistance at the O.9140, the 11th October high.
"One of our data feeds places the recent spike high at 0.9403 and we will consider that upside targets have been met for now," says the analyst.