With arguably the most important election of modern times upon us, it’s no surprise that headlines have been dominated by the U.S. election. However, interest rate decisions in both the U.K. and U.S. added to the anticipation of market volatility throughout the week—and it’s safe to say the markets did not disappoint.
The first major focal point of the week was, of course, the U.S. election, where the American public was faced with the choice between the return of Donald Trump or continuing with the Democrats led by Kamala Harris. This election campaign was nothing short of eventful, marked by assassination attempts, a sitting President withdrawing from the race just three months before the election, and accusations of foreign interference. Finally, the U.S. reached a decisive moment, revealing the nation’s future direction. In the days leading up to the election, opinion polls indicated Harris had an edge. However, as results trickled in throughout Tuesday and into Wednesday morning, Trump pulled off what many are calling “the greatest comeback of all time.”
In his acceptance speech, Trump reiterated his focus on tariffs, a stance that was quickly reflected in the markets, with the U.S. dollar making considerable gains against both the euro and the pound. At its peak, the dollar appreciated by around 1.8% against the pound. Meanwhile, the Labour Party in the U.K. found itself in a predicament after several cabinet ministers made pre-election comments about Trump. It remains to be seen whether they can mend diplomatic ties following the election outcome.
But the week’s excitement didn’t end there. Thursday brought the latest interest rate decisions from the central banks of the U.K. and the U.S. Both the Bank of England (BoE) and the Federal Reserve were widely expected to implement a 25 basis point cut. First up was the BoE, led by Governor Andrew Bailey, which delivered the anticipated 25bp cut with a voting split of 0-8-1, as forecasted. Following this decision, the pound managed to recoup some of its earlier losses, gaining approximately 100 pips against the U.S. dollar.
Later that evening, it was the Federal Reserve’s turn. As expected, they also opted for a 25bp cut, though the move generated only limited market movement.
Other economic releases this week were overshadowed by these three pivotal events, resulting in minimal market impact. As we look ahead to next week, a sense of normalcy may return, with the focus shifting to key data releases from the U.K. and U.S. The most significant of these will likely be the U.K.’s GDP figures and the U.S.’s CPI and retail sales data. Another week of heightened volatility is anticipated, with the potential for sterling to gradually lose ground against the U.S. dollar.
In conclusion, this past week has been a whirlwind of economic and political developments, with the outcome of the U.S. election setting the tone for market dynamics. As central banks continue to respond to economic challenges, traders and investors should brace for another week of potential market swings driven by critical data releases.