US Dollar recovers ground on lack of election surprises

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8 November 2018

thomasdodds

The US Dollar clawed back ground against its major peers on Wednesday afternoon, recovering all of its losses versus the Euro following its post-election sell-off.

A
s we mentioned in our US midterm election preview report, we projected that a Democrat election victory in the US House was mostly priced in and would be largely neutral for the greenback. This appears to be proving the case, with yesterday’s retracement in the Dollar vindicating our view that its sell-off following the midterm election result was excessive. The final election results themselves were actually bang in line with the opinion polls, leading to a split Congress in which the Democrats control the House and the Republicans cemented their majority in the Senate.

Next up for the US Dollar will be this evening’s Federal Reserve monetary policy announcement. With no ‘dot plot’ to be released and no fresh economic projections, the chances of any policy changes are effectively zero. We instead look for clues in the FOMC’s statement regarding the chances of another interest rate hike in December, currently more than 70% priced in by the market. Comments from the Fed regarding the recent trade developments and the neutral level of interest rates in the US could also shift the Dollar when released at 7pm UK time.

Pound holds onto gains amid Brexit optimism

Hopes of an imminent agreement on Brexit kept the Pound well supported above the 1.31 mark against the US Dollar during London trading yesterday.

According to a Bloomberg report, released on Wednesday, Prime Minister Theresa May’s cabinet was invited to read a complete draft of the Brexit agreement. Uncertainty regarding progress over the key Irish border issue remains high, however, and it remains unclear as to whether enough progress was made on this front in order to warrant an unscheduled EU summit at the end of this month.

Eurozone retail sales flat, Draghi to speak today

In the Eurozone, retail sales figures that were mostly in line with expectations meant that the Euro was driven largely by events elsewhere yesterday.

Today could prove different, with European Central Bank President Mario Draghi scheduled to speak this afternoon. Aside from any major comments on monetary policy from Draghi, the European Commission will also be releasing updated growth forecasts for the Eurozone. Following recent soft GDP data, weak PMIs and yesterday’s flat retail sales reading, we think that a slowdown in the Eurozone economy in the second half of 2018 is almost inevitable.