Financial markets rally as Obama canters to US election victory as focus switches back to Greece

Tom Tong07/Nov/2012Currency Updates

USD

The Greenback had a relatively stagnant day of trading yesterday with no major data released and investors pegged to any news about the tight election. Despite the fact that not all votes have been counted, Barack Obama has won re-election as President of the United States. After winning the state of Ohio, Obama obtained 274 electoral college votes, four more than the 270 out of 538 needed to proclaim his victory. By 08:00 GMT, he had 303 electoral votes compared to Republican challenger Mitt Romney’s 206.

The general consensus was that an Obama win had been fairly priced into the market. In terms of implications, many expect an immediate bearish effect on the dollar, due to his policies and decision to keep Bernanke in the Fed as chairman, who is still likely to be encouraged to proceed with further QE.

In terms of the dollar today there is no major data to be released and focus will still be on the outcome of the election, the composition of the house of congress, and how the fiscal cliff will be tackled.

EUR

EUR/USD finally reversed its 4 day downward trend yesterday, bouncing back on the presidential news.

With the US election now finished investors can slightly loosen their grip of the news flow coming out of the US and now turn to Greece, where Parliament will vote today on additional austerity measures amounting to 13.5 billion euros. This in the midst of growing unrest and outcry from its population.

Greek prime minister Antonis Samaras pleaded that the austerity measures are needed and crucial in securing the country’s next round of financial aid.

There is a bunch of mixed medium and low tier data to be released today from the eurozone, including YoY and MoM retail sales. On the other hand, the focus remains on Greece in conjunction with tomorrow’s interest rate decision.

The latest Reuters poll last week regarding the interest rate decision tomorrow shows 80% in favour of the ECB holding ground with the rate unchanged at 0.75%, though most analysts included in the poll are expecting a cut in the next few months.

GBP

Yesterday we saw a mix low and medium tier data released regarding the health of the UK economy. Unfortunately, most numbers were in the red with housing prices and industrial production coming in weaker that expected.

On the other hand this morning we saw sterling react instantly against the dollar in line with expectations of the election outcome, rallying in favour of the sterling.

Today there is no major data to be released from the UK and sterling’s outcome will be much dependant on speculation following the election.

For tomorrow, the Bank of England is due to release it’s interest rate decision 45 minutes before the ECB; likewise the consensus is expecting an unchanged rate from the UK.

The big question for tomorrow is whether the Bank of England will pause its government bond purchase programme, i.e. QE, in November, following unexpected strong GDP growth between July and September. A Reuters poll last week showed a 60% belief in favour of pausing purchases.

Prime minister Cameron hosts the German chancellor in London today in order to flatten out some of the differences in opinions regarding the European budget before a summit called in two weeks time.

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Written by Tom Tong

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