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Transitioning to Trump

It has taken some time for markets to settle down to the US election result and that dynamic continues. In FX, it’s been felt most strongly in emerging market currencies, which were under pressure towards the end of last week and also during the Asia session today. Against the US dollar, the Korean won has reached levels not seen since early July, with the Indian Rupiah seeing a move above the 67 level on USDINR, reaching levels not seen since late July. But it’s more the speed of the moves that have been seen that is more concerning, rather than the levels. This has also been seen in interest rate markets, the US 10Y bond seeing a nearly 40bp rise in yields since the US Presidential election vote last week. We’ve not seen such a sharp 1 week increase in yields in the US for nearly 3.5 years. Looking at major currencies, then the surprise move over the past week has been the strength in sterling, which has even managed to outpace the US dollar.

Sterling is likely to remain in focus this week when we see CPI Data tomorrow. There is a greater focus on this at present, given the impact from the falling pound is starting to feed through into import prices and input prices. We also see employment data on Wednesday. The reasons for the pound strong performance are varied, but as has been the case for some time now, the market has been very short of sterling. Also seen today are speeches from ECB President Draghi this afternoon, together with Fed speakers later in the day, although all are non-voters. Whilst EM FX and bonds are weakening, stocks are opening firmer, but volatility is likely to remain in place as the US transitions.

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