November 11, 2024

“The US election uncertainty continues to drive swings in FX as the market tries to fine-tune its expectations for Trump’s trade policy next year. The likely reappointment of arch-protectionist Lighthizer is the latest announcement to inject fear about blanket tariffs.”

Sam Cornford – Head of Trading

USD

The market piled back into the dollar in a fresh Trump surge late on Friday, adding to a run of six consecutive weekly gains that have lifted it nearly 5% since early October. The name Lighthizer is what appeared to give the dollar a strong boost, as the media reported that the highly protectionist ex-US trade representative would likely return to his role under Trump 2.0, reigniting fears about a genuine follow-through on promises for blanket tariffs. Lighthizer penned an FT article several weeks ago, in which he pushed back on the economist consensus that tariffs would be inflationary and portrayed the US manufacturing sector as a victim of export-led growth in countries like China. This is a flavour of the kind of volatility we are going to see over the coming months as the outcomes for trade policy get clearer and markets adjust their forecasts for the real economic impact

The main event on the calendar this week is Wednesday’s CPI report. It is expected to rise back to 2.6% while core inflation holds steady again at 3.3%, and that is part of the reason why there are creeping doubts about another Fed rate cut in December, currently priced at 48%. PPI also comes on Thursday and retail sales on Friday.

GBP

Sterling continues to strongly outperform the euro, as the Bank of England remains set to cut more slowly than the ECB and the UK is seen as less likely to be targeted by Trump trade policy. GBP/EUR is nearly 2% higher than the lows hit amid the post-budget gilt turmoil at the end of October. There are several important events for the pound this week. The first is the ONS’ labour report tomorrow morning where ex-bonus wages should fall a bit lower, and then the focus switches to a Bailey speech on Thursday and Q3 GDP on Friday, where growth is widely expected to have slowed into the second half of the year.

EUR

EUR/USD is having another stab at trading below 1.07 this morning and has hit a fresh four-month low, as the prospect of US trade tariffs and a breakdown in German government put ever-growing downward pressure on the euro. German Chancellor Scholz now appears open to calling a vote of no confidence before Christmas, which could mean a snap election as soon as January or February next year. The macro calendar is relatively light this week so the euro will largely be at the mercy of the US data and post-election volatility, although we are expecting a ZEW survey report tomorrow morning. Elsewhere in Europe, Norwegian core inflation fell as expected from 3.1% to 2.7%, keeping hopes alive for a first rate cut in March 2025.

Markets

The ‘Trump trade’ surge in equities hit new heights on Friday. The S&P 500 briefly broke through the 6,000 barrier for the first time ever, capping off its best week since September 2023 with a near 5% gain. It isn’t just the US performing well, either – MSCI’s gauge of world equities touched a record peak too.

Main Economic Events (All Times CET)

8:00am: Norway CPI Inflation

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