Daily Market Commentary 22nd October 2020

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Markets are now hanging on the outcome of stimulus negotiations in the United States. House Speaker Pelosi has revived hopes with talk of a new and massive stimulus package, which will be the fourth! The White House has been in negotiations, via the Treasury Secretary Steve Mnuchin, who is also talking a big game. The deal would be fiscally reckless and further add to the current climate of fiscal negligence. The deal may be passed in the House and approved by the President, but would not be enacted before the election, or likely approved by the Senate.

The US Dollar continued to lose ground, as market enthusiasm for stimulus, climbed. The EUR and GBP were both beneficiaries of the market anticipation, but the resumption of trade talks between the UK and EU, added to the positive climate. The talks were scheduled to be finished last week, but found an extension, as European negotiators realised their folly. A ‘No Deal’ trade agreement and operation under WTO rules remain the most likely scenario, as the EU negotiators hold their collective knives to their collective noses. The GBP spiked up above 1.3150, which is likely to continue, while the EUR jumped to 1.1850.

Commodity currencies regained some lost ground after the USD settled. The NZD pushed back above 0.6650, while the AUD climbed back to 0.7120, purely as a reaction to the reserve weakness. Volatility is set to continue in the lead up to the US Presidential Elections.

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