Morning Brief – Knock knock

Knock knock

As the White House transitions to a mix of green envy and red hatred towards the unconfirmed President-elect Biden, the Dollar remains well bid. Across emerging market currencies the impact of Biden’s win has been unmistakably priced in with currencies such as the Mexican Peso and Chinese Yuan holding onto strong gains. We have yet to see, however, Biden’s forthcoming presidency weaken the Dollar significantly. This is of course partly due to a likely Republican hold of the Senate but also increasingly reflective of the risk that Donald Trump poses to the global economy in the three months (at least!) that he remains in office.

The complicated processes of electing a President are well embedded in the US political architecture. As a result of that the incumbent Presidency has the right to continue to wield the full power of office following the loss of an election until such time as the President-elect is inaugurated. This has always concerned markets who are all too aware that the incumbent President isn’t one for following the normal rule book. Some measures that Trump has already taken since his defeat was announced in the media, whilst perfectly legal, have left some observers concerned. In combination with Trump’s Secretary of State Mike Pompeo announcing yesterday that “there will be a smooth transition to a second Trump administration”, the risk of political upset is tangible.

Since loosing the election Trump has so far fired his defence Secretary and made key changes within the intelligence agency. This political jostling does invite the potential for Trump to replace resisting officials with loyalists more likely to help him defend his refusal to accept electoral defeat, thereby creating a risk to politics and society in the United States. There is the strong possibility that the reshuffle is more sanguine and merely an expression of Trump’s dissatisfaction at their role in supporting him through the long election period. However, if the market finds signs that Trump’s use of office following defeat is to hinder a smooth transition of power then rising global uncertainty will continue to support the demand fore safehaven currencies.

In the UK this morning, third quarter GDP growth was estimated at 15.5%. Despite being a record figure the expansion fell short of the consensus forecast of 16% leaving Sterling a few pips lower following the data release. The result means that the UK economy still weighs in at 8.2% smaller than its Q1 size before the pandemic. With a lockdown still in place across much of the UK, hopes of a sharp v-shaped recovery have been put off by a few months. However, optimism surrounding a vaccine awaiting authorisation could still deliver a strong rebound.

Discussion and Analysis by Charles Porter

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