Not just the flow
US election day is upon us. As we have noted, whilst the polls open today and much of the US electorate cast their ballots, there are two key elements to keep in mind. Firstly, many millions of eligible voters have already cast their ballots in the weeks leading up to today. This may create a bias in the early commentary and exit polls. Secondly, the true outcome of the result may not be known for several days to come. The implications of the process and outcome of the US election will reach further than the US Dollar or US assets alone.
One key asset class affected will be in high-beta and emerging market FX. Here it will not just be the flows but also liquidity and market conditions that affect trading patterns within exposed currency pairs. In the run up to and during the process of key political events such as the US election, derisking and deleveraging limits liquidity. G10 currencies including AUD, NZD, NOK and SEK could be expected to exhibit lower liquidity conditions in addition to emerging market currency pairs.
As well as driving trading conditions and price, lower liquidity conditions could exacerbate price movements associated with data releases and key monetary policy decisions scheduled for the rest of the week. Of particular note, the market will have to digest UK and US interest rate decisions on Thursday whilst they still may be awaiting the outcome of the binary US election event.
Discussion and Analysis by Charles Porter
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