Hillary Clinton in pole position ahead of today’s US Presidential Election

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8 November 2016

thomasdodds

Democrat Hillary Clinton held onto her slender lead over Republican Donald Trump on Monday, with polls officially opening in the US today as Americans cast their vote in the 58th US Presidential Election.

T
he polls opened at 10:00 UK time on the east coast (5am EST), with the bulk of the results of each state to begin filtering through from around midnight tonight. Investors will be focusing heavily on the key swing states, where the election will ultimately be won or lost. We think the results in Florida, North Carolina and Pennsylvania are likely to generate the highest currency volatility.

Eleventh hour opinion surveys in the run up to the election remain tight. Clinton continues to hold only a very slender advantage, with Bloomberg’s final poll giving her a three point lead.

FiveThirtyEight, a US opinion poll website which generates probabilities on the outcome of the election, currently gives Clinton around a 70% chance of victory (Figure 1). Betting odds have diverged and now give her closer to an 85% chance following the news over the weekend that she’ll face no criminal charges over her private email server.

Figure 1: FiveThirtyEight US Presidential Election Odds (June ‘16 – November ‘16)

In the event of a Clinton win in the early hours of tomorrow morning, we would expect a relief rally in the US Dollar and emerging market currencies in general. This would probably prove short lived given her victory is largely priced in by the markets.

By contrast, a Trump win could trigger an uncertain and volatility trading environment. There would likely be a flight to safe havens, while the US Dollar would no doubt suffer as investors begin discounting the possibility of an interest rate hike by the Federal Reserve in December.

Regardless of the outcome, we expect volatility to remain high as the results begin to hit the newswires just after midnight UK time, with the final outcome likely to be announced at around 4:00 UK time on Wednesday morning.

Yesterday, the US Dollar strengthened across the board, with investors also piling back into the Mexican Peso on expectations that Hillary Clinton will be named as the next US President. The Peso, which has emerged as the main proxy for betting on the US election, has returned to a near two week high. The safe haven Swiss Franc and Japanese Yen both sold-off sharply, while emerging market currencies rallied.

Major currencies in detail:

GBP

Sterling slumped 0.3% against a resurgent US Dollar on Monday.

In the domestic economy, house price growth slipped to a three year low yesterday according to Halifax. Price growth fell to 5.2% in the year to October from 5.8% in the previous month, largely due to increasingly constrained demand.

Industrial and manufacturing production figures this morning are likely to take a backseat due to the election. With announcements in the UK relatively light this week, attention will be mainly on political developments.

EUR

A broadly stronger Dollar caused the Euro to slump 0.2% on Monday.

Yesterday’s retail sales report in the Eurozone came in slightly better than expected, fuelling hope of an economic recovery in the Euro-area. Sales came in slightly below expectations at 1.1% in the year to September, although this was more than made up by a sharp upward revision in August’s number.

Meanwhile, ECB member Lautenschlager seemingly dismissed the possibility of an immediate change in interest rates, claiming it would stifle the economic recovery.

Trade data out of Germany and France this morning will be the only major announcement out of the Eurozone today.

USD

The US Dollar strengthened 0.4% against its major peers yesterday as hopes of a Hillary Clinton election victory began to grow.

All economic data today will be completely overshadowed by election expectations.

We think the main movements in the currency markets will centre on the exit poll results for the key swing states. Florida (midnight Uk time), North Carolina (00:30 UK time), Pennsylvania and Michigan (both 1:00 UK time) will be the ones to look out for. A victory for Trump in any of these swing states could take the result down to the wire, the uncertainty of which would keep pressure firmly on the US Dollar.

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