As is so often the case in currency markets, the initial response to a piece of news is not always the correct one. In this instance, the conventional wisdom that an Obama win might result in sustained dollar-selling has not come to pass. Indeed, after the knee-jerk dollar-selling evident in the first couple of hours after Obama’s win was declared, the greenback has bounced back in grand style. For example, Cable has declined to near 1.5950, down from a high of 1.6043, while the euro has fallen all the way back to a low of 1.2737 from an earlier high of 1.2875. The latter has been adversely affected by some more troubling news on the state of the eurozone economy – Spanish industrial production fell by a much larger than expected 7.0% in September, while German industrial production likewise was much weaker than expectations. Also, ahead of tomorrow’s ECB meeting, President Draghi has observed that the German economy is being dragged down by the debt crisis.
The dollar index almost reached 81, a two-month high. For the dollar bulls, today’s price action is very reassuring, and moreover it offers encouragement that further gains are in prospect. However, for the single currency, it looks much less optimistic.
