Good morning,

Dollar continues to roll higher

A quiet weekend has begat a quiet Asian session with the overall trends of a stronger USD and weakness elsewhere continuing to pay off. USD on a trade weighted basis has hit the highest level in 7 months with significant gains and strength easily maintained against both Chinese and European currencies.

As much as the election is only a fortnight away and we have our own ideas of what is likely to happen and the currency reaction is likely to be, investors are happy to continue betting on a divergent December; interest rate hikes in Washington by the Fed and more QE and other easing from the ECB out of Frankfurt. Throw in possible cuts by the Bank of England, additional stimulus by the People’s Bank of China or possibly the Bank of Japan and you can easily build a picture of weakness against the greenback.

Banks to leave?

News on sterling and around Brexit was rather limited over the weekend with most of the Sunday political shows focusing on which London airport is set to get another runway. The front page of the Observer however led on a story that banks were looking to quit London by the end of Q1 next year. The news came from a report from the British Banker’s Association but while we agree that some banks may now move some departments and structures into Europe to further guarantee passporting rights, we feel it unlikely that Canary Wharf is going to drift down the Thames and up the Seine or Rhine.

Over a million jobs in the UK are in or related to the Financial Services industry and therefore the tax that the industry represents to the Treasury is vast; banks will not be allowed to leave and will be made comfortable to stay and, the hope is, that additional successful export industries can thrive.

Europe in the crosshairs

Today’s data calendar is quiet although the latest look at European PMIs may be enough to stem the single currency’s bleeding for a while. Through the week Draghi, Mersch, Coeure, Nowotny, Hansson, Visco and Nowotny again are all due to speak on ECB policy and matters pertaining to the Eurozone; we have to think that additional pressure on EUR will emerge from these notes.

The weakness in EUR also opens a door for a lower GBPEUR; bears on sterling have not disappeared and any euro weakness only allows those who wish to express a sterling negative view a better entry point for their trades. We do not see much fresh impetus in sterling either way until the BOE meeting on November 3rd however politics does have a habit of blowing up out of nowhere; look at the remnants of the Canadian – EU trade deal following the Wallonia protest over the weekend.

Have a great day and a better weekend

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