Daily Market Pulse

Increase in volatility – Election Day


Dollar slightly gained (+0.02%) against a broad basket of major currencies as investors continued to assess the uncertain scenario of the U.S. election. Unlike the FX market, equity markets had a higher trading volume and printed higher gains. The pan-European Stoxx 600, ended the day with gains of 1.5%, while the US benchmark S&P 500 closed up 1.07%, with energy leading the profits. Undoubtedly, the U.S presidential elections will take center stage today in all markets. Risk assets might see pressure and an increase in volatility, and havens find a significant bid. According to the latest nationwide polling, Democrat Nominee Joe Biden is still holding roughly a 6.7-point lead over President Trump.


The euro was flat against the USD on Monday as new lockdown measures in the region kept investors cautious. Countries across the EU are evaluating how their hospital systems will cope with rapidly increasing patient numbers amid the pandemic’s second wave. On Monday Spain’s infections reached a record of 55,019, more than double the increase from last Friday, while France reported a record 52,518 cases. On the data front, the IHS Markit Eurozone Manufacturing PMI published yesterday indicated a further improvement in manufacturing sector growth during October. After accounting for seasonal factors, the headline index moved up to 54.8, from 53.7 in September and better than the earlier flash reading. Aside from concerns over the spread of Covid-19, the market’s focus now shifts to the U.S. elections today.


The GBP dropped (0.03%) to an almost four-week low against the dollar on Monday after the U.K announced a new national lockdown on Sunday, but hopes for a Brexit deal and positive U.K Manufacturing PMI prevented a bigger fall for the currency. Prime Minister Boris Johnson announced the second lockdown in England from Thursday, which will include closing pubs, restaurants, gyms, non-essential shops, and places of worship. The seasonally adjusted IHS Markit/CIPS PMI fell to 53.7 in October, down from 54.1 in September but above the earlier flash estimate of 53.3. The PMI has remained at an above-50.0 level, signaling expansion, despite the further loss of growth momentum. Today, the focus will be on the U.S election.


The Japanese currency slightly fell (0.14%) against the USD on Monday, with investors reducing positions due to uncertainty over the U.S election result. The JPY also was negatively influenced by Manufacturing PMI data. Although the au Jibun Bank Japan Manufacturing PMI was revised higher to 48.7 in October 2020 from a flash reading of 48.0 and compared to a final 47.7 in the previous month, the figure is still within contraction territory. This marked the lowest deterioration in the health of the manufacturing sector since January. Japanese markets are closed Tuesday as the country celebrates Culture Day.


The Canadian dollar strengthened 1.11% against the USD on Monday, which was the best performance among G10 currencies. The CAD’s leap is due to a slight upturn in risk appetite, oil prices rebound, and, mainly, after October data suggested another improvement in the health of the Canadian manufacturing sector as the PMI registered at 55.5. New orders and output have increased sharply with firms remaining optimistic that production will improve over the year. Today, crude oil prices might continue to show weakness on concerns over the impact of Covid-19 lockdowns in Europe on-demand and uncertainty over Today’s presidential election in the U.S. 


Markets in Mexico were closed on Monday due to a public holiday. Today, market participants will be focusing on the results for the U.S Senate as well as the presidency. Moreover, the MXN might head for choppy waters on the back of weaker oil prices in the face of laggard demand due to new mobility restriction measures across Europe. Oil prices slid 10% last week – their largest weekly drop since April. On the economic data front, the HIS Markit Manufacturing PMI will be posted, which is likely to show a slight improvement in October.


The CNY was flat against the USD on Monday amid positive Chinese factory activity data and expectations of a win for Joe Biden in the U.S. presidential election. The Caixin China General Manufacturing Purchasing Managers’ Index (PMI), which gives an independent snapshot of the country’s manufacturing sector, rose to 53.6 in October from 53.0 in September. The October reading signaled that the factory activity expanded at the fastest pace in nearly a decade as a recovery in both supply and demand continued to pick up speed after the Covid-19’s peak in the country. Overnight, implied volatility for the offshore yuan spiked as uncertainty will likely remain until tomorrow morning when there should be clarity on the next U.S. President.


Markets in Brazil were closed on Monday due to a public holiday. Today, investors will be focusing on the results for the U.S Senate as well as the presidency. Also, market participants will continue to assess the effect of lockdown measures on the global economy. Domestically, lower house Speaker Rodrigo Maia warned that the Economy Minister Paulo Guedes is alone in defending the spending cap rule, which raised concerns about fiscal policy. The HIS Markit Manufacturing PMI is widely expected. 


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