Fading risks of a no-deal Brexit gave the Pound an opportunity to put in a stellar performance last month, while the US Dollar suffered from a persistent selling bias as a risk-on mood prevailed.
The Pound roared higher in October, recording its best monthly performance in over a decade as the risk of a no-deal Brexit faded.
The upswing in Sterling came after a breakthrough in Brexit talks, with GBP/USD rocketing up by around 8 cents to break through to $1.30 after Boris Johnson defied all odds and reached a new Brexit deal with the EU.
The Pound’s rally was made all the more dramatic given it was stuck at a one-month low at the start of October amidst reports UK-EU talks had broken down.
However, Sterling ran out of momentum towards the end of the month after Johnson was unable to persuade MPs to back his EU-endorsed deal.
The Prime Minister was subsequently forced to seek an extension to Article 50 and, with Brexit delayed until 31st January, the resulting political vacuum paved a way for a snap election.
With a general election looming on 12th December, British politics will be a key catalyst for movement in GBP exchange rates, with the twists and turns of a turbulent campaign trail likely to infuse Sterling with fresh volatility.
Upcoming GDP figures for the UK will also be on the radar for GBP investors as they seek confirmation the country avoided slipping into a recession in the third quarter.
The Euro also took some cues from Brexit last month, with hopes that a damaging no-deal Brexit might be avoided shoring up the single currency throughout the month.
This helped to offset some of the weakness caused by an increasingly fragile outlook for the Eurozone.
European data continued to underwhelm in October, with inflation undershooting expectations and a contraction in the bloc’s private sector persisting for a fourth consecutive month.
So far in November the Euro has found itself trending lower as a mix of Eurozone gloom and USD strength exerts pressure on the shared currency.
This downtrend also looks likely to persist through the remainder of the month, especially with Germany’s latest GDP figures expected to confirm that the Eurozone’s largest economy slipped into a recession in the third quarter.
The US Dollar was undermined by a persistent selling bias in October as a risk-on mood prevailed throughout the month.
An improvement in risk appetite was partly driven by positive Brexit developments, but was really turbo charged by US-China trade optimism.
Trade tensions between the two powers finally started to ease last month as a preliminary trade deal was agreed in principle following high level talks in Washington.
October’s USD sell-off was also driven by Federal Reserve rate expectations, with markets wary of the ‘Greenback’ as the Fed delivered its third consecutive rate cut.
USD exchange rates would subsequently recoup some of these losses at the end of the month as the Fed struck a more hawkish tone than expected.
The US Dollar has had a strong start so far in November, with some upbeat PMI figures and robust payroll data helping to dispel concerns for a sharp slowdown in the US economy.
Going forward, we expect the trend of positive US data to support USD, but any upside in the currency is likely to be capped by US-China trade optimism, a continuing risk-on market acting to the detriment of the safe-haven American currency.
Trade in the Australian Dollar was mixed in October, as the currency proved extremely sensitive to a deluge of US-China trade headlines.
While developments were broadly positive, with the two sides closing in on a ‘phase 1’ trade deal, niggling doubts put a lid on the ‘Aussie’ last month.
A mixed bag of data also failed to provide AUD momentum, with a positive jobs report undermined by a weaker-than-expected inflation print.
So far the Australian Dollar is off to a strong start in November, with a surprisingly upbeat outlook from the Reserve Bank of Australia buoying the Antipodean currency.
However whether or not the Australian Dollar will be able to build on these gains depends largely on whether US-China trade talks remain on track.
The Canadian Dollar trended higher through October, buoyed by increased risk sentiment and a sustained rise in oil prices.
However the ‘Loonie’ closed the month on a sour note, falling sharply in the wake of the Bank of Canada’s latest policy meeting when a dovish BoC Governor Stephen Poloz warned Canada has ‘not been immune’ to slowing global growth.
With this in mind CAD investors are likely to pay close attention to domestic data in the coming weeks, with a softer economic outlook likely to prompt speculation for a BoC rate cut in the near future.