A Historic Victory for the Conservatives
This week geopolitics has been at the forefront in currency movement. Two important outcomes had taken place, UK elections have come to a landslide majority for the conservatives and President Trump informs of a good trade deal and has signed off on a deal to avert the upcoming tariffs which was set for the 15th of December.
It was an extraordinary Thursday night.
Boris Johnson has won a landslide election victory, broke through Labour's "red wall" and winning over millions of voters.
This now means the Prime Minister can forge ahead with his plan to get Britain out of the EU by Jan 31.
At just after 5am, the Tories crossed the 326-seat threshold for a majority.
By 6am, they had won over 360 seats.
Sterling enjoyed its biggest surge in 2019 at 10pm once the exit poll which was released also showed a forecasted landslide majority.
PM Johnson said his government "has given a powerful new mandate to get Brexit done, to unite this country and take it forward".
Markets now have some certainty that a smooth Brexit will take place, with a vote set to be held on the Withdrawal Agreement next week.
PM Johnson now no longer has to rely on any one wing of his party, meaning that the hard-line Eurosceptic can be neutralised.
The 'Corbyn risk' has now been priced out, with the Labour leader announcing that he will not fight another campaign as leader.
Corbyn's leadership was not the only casualty of the ballot. Lib Dem leader Jo Swinson lost her Scottish seat to the SNP.
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Also this week's Federal Reserve and the European Central Bank's monetary policy decision had taken place.
On Wednesday, Jerome Powell left interest rates unchanged but made it clear that rate hikes are not on the horizon until inflation increases substantially.
The US dollar fell slightly but the losses were limited particularly for USD/JPY, the greenback soared against most of the major currencies following reports by the Wall Street Journal that US negotiators offered to cut tariffs by 50%.
It is important to establish that there has been an official announcement by Trump's tweets and reports by the media, along with a sign off of the tariffs which will be delayed.
Meanwhile there were some important but subtle shifts in the European Central Bank and FederaI Reserve's outlook this week. Christine Lagarde presided over her first ECB meeting and she kicked off her term with optimism.
Instead of emphasising the vulnerabilities in the economy and the need for on-going stimulus, she said the risks were less pronounced and there are signs of a mild increase in core inflation.
The ECB even upgraded its 2020 GDP and inflation forecasts. When asked if she is a dove or a hawk, she said that she strived to be an owl, the bird of wisdom.
The Federal Reserve Chairman Jerome Powell focused more on the lack of need for tightening than the improvements in the US economy.
Like the ECB, the Federal Reserve left interest rates unchanged. GDP projections were left at prior levels but the central bank now sees inflation growing at a slower pace this year.
Most importantly, there was a downward shift in the dot plots with policymakers on balance seeing no changes in interest rates in 2020.
Fed Chairman Powell reinforced the outlook for steady rates next year when he said the Fed wants to see a move in inflation that is significant and persistent before raising interest rates.
Looking ahead to next week, the final trading week before the Christmas period contains a couple of notable central bank decisions.
The Bank of Japan and Bank of England are both likely to keep policy on hold, though any hints on the policy outlook will be keenly watched.
Also, from the BoJ, any comments on the recently announced fiscal stimulus plan.