Risk assets rally after VP debate, dovish FOMC minutes

This week has continued to be a highly volatile one in the FX market, with risk appetite dragged one way and then the next by ongoing wrangling in the US government.

Risk sentiment was buoyed at the beginning of the week by optimism surrounding a fresh round of US fiscal stimulus, only for Trump to dash hopes during a Twitter tirade on Tuesday. While more government spending before next month’s election appears off the table, there is a general sense that it is likely before the end of the year, particularly given Biden’s strong lead in the polls and the Democrats pledge for greater fiscal expansion.

Last night’s vice presidential debate was much more civilised than last week’s presidential one, although neither landed a knockout blow. This leaves Trump trailing by around 9% in the latest poll of polls, dampening the chances of a contested vote and in the process supporting risk assets. Yesterday evening FOMC minutes were also on the dovish side, further weighing on the dollar against pretty much every other major currency. This includes the euro, which is now up around half a percent for the week against the greenback.

Tighter UK restrictions likely as virus cases surge

Sterling has found gains slightly harder to come by than the common currency so far this week, with investors cautious surrounding the latest round of Brexit talks.

A rise in new UK COVID-19 cases also presents a cause for concern for investors. New daily cases have jumped above 14,000 in the past few days, well in excess of those recorded during the peak of the crisis in March and April. While this is of course a result of much wider levels of testing, fresh containment measures are continuing to be announced at regular intervals, notably in Scotland, which has begun closing pubs and restaurants in certain areas. There have also been reports that the north of England may also face tougher measures as of early next week, including in Manchester and Liverpool.

Focus in the UK today will likely remain on Brexit and any headlines surrounding the aforementioned fresh round of virus restrictions. Further afield, investors will be paying close attention to this afternoon’s ECB meeting accounts and the weekly US jobless claims figure.