November 7 2018

Nov. 7, 2018 (Western Union Business Solutions)  – The U.S. dollar slumped to multi-week lows after America’s midterm vote yielded a split Congress. The dollar slid broadly, hitting two- and three-week lows against the euro and sterling and its weakest in three months versus the Aussie and kiwi dollars. Canada’s dollar appreciated while emerging markets also outperformed the greenback. America has spoken and awarded the House of Representatives to the Democrats. Republicans maintained control of the Senate. The mixed result suggests an uphill battle for President Trump to deliver more economy-boosting stimulus, a scenario that could mean less economic horsepower and less leeway for the Federal Reserve to raise borrowing rates. The mixed vote also points to a period of dollar-negative political uncertainty if Democrats use their clout to investigate the president. Downside for the greenback could prove somewhat limited ahead of the Fed which begins a two-day meeting today that will conclude Thursday with a decision on interest rates.




The strong dollar suffered a setback after America’s midterm election yielded a divided government that pointed to political gridlock ahead. With Democrats regaining control of the House from Republicans it could make it harder on the president to advance his growth-positive agenda. The specter of less horsepower for the world’s biggest economy could potentially hasten the end of the Fed’s rate hiking era. For now, though, the U.S. economy remains in a high gear, something that could lead the Fed this week to reiterate an optimistic outlook and stay on course for a December rate hike.




Canada’s dollar turned higher against its political-injured U.S. counterpart. Broad-based greenback weakness helped to push oil markets higher, giving the loonie an added boost. Canada’s economy will be in focus today with a gauge of business sentiment due at 10 a.m. ET. The Ivey PMI barely grew last time, with a reading of 50.4 in September, holding just the 50 level that separates boom from bust. The index could be primed for a bounce back in October after the U.S. and Canada forged a new trade agreement.




The kiwi dollar soared to three-month highs and led gains against the U.S. currency. The kiwi received a data-inspired jolt after New Zealand reported a 3.9% jobless rate during the third quarter, the lowest in a decade, a stronger than expected showing that all but shut the door to a local rate cut from 1.75%. While New Zealand’s central bank mulls a policy decision Thursday, it’s not expected to alter borrowing rates but officials could sound more confident in the wake of the stellar jobs news.




The yen steadied above one-month lows hit overnight as the dollar emerged broadly weaker after America’s midterm vote yielded a divided government. Dollar losses were modest and kept the U.S. currency above key levels against the yen. Gains could be tough to sustain for the yen with the Fed now in focus. America’s central bank embarks on a two-day meeting today that will conclude Thursday with an afternoon decision on interest rates. The Fed is not expected to increase rates just yet but an upbeat message would open the door wider to a rate hike in December, a narrative that’s long proven dollar-positive.




The euro rolled to two-week peaks after the dollar succumbed to political risk in the wake of America’s mixed election outcome. Meanwhile, the single currency enjoyed a data lift with German industrial output topping forecasts. America’s midterm vote merely dimmed the political spotlight on Italy, a debt-choked nation that’s in a battle with Brussels over its spending plans, a factor that could keep a relatively low ceiling above the single currency.




Sterling rallied to three-week highs against its U.S. rival as political uncertainty increased on the left side of the pond. Sterling sentiment has brightened at the margin as markets see potential scope for a Brexit deal in the weeks ahead, a treaty that would go some way in allaying pound-negative political risk. Still, the risk is still alive of a no deal outcome, a scenario that would pose a potentially significant downside threat to the U.K. economy. And even if a Brexit treaty is reached, it would still need to be ratified by area parliaments which could prove a daunting task.