A big portion of the election transfer within the US Greenback (USD) has been unwound. That appears extra like a positioning adjustment quite than a rethink of what a Trump presidency means for international markets. Do not forget that markets acquired to Election Day broadly pricing in a Trump victory, and whereas the USD spiked in response to the Republican clear sweep, there are maybe some questions now on how far the USD can rally close to time period given the main focus is shifting again to the macroeconomic dialogue, ING’s FX analyst Francesco Pesole notes.
USD stays in a powerful place
“The Fed reduce charges by 25bp yesterday, according to market expectations and consensus. The FX market was very marginally impacted and so was the charges market. If something, we noticed a really temporary firming within the USD and a small rise in yields when Chair Jerome Powell appeared to counsel a extra upbeat outlook for the US economic system. Finally, markets have been in search of any indication that Powell would possibly tweak the narrative on the again of the US election, however there was understandably no indication of that.”
“The USD stays in a powerful place from a price perspective. The 2-year USD swap price is close to the 4% deal with, and we in all probability have to see some worsening in US information sentiment for markets to take that again decrease.”
“We’re in an adjustment section after the US election strikes, and with volatility falling there are some potential pockets of alternative for pro-cyclical currencies that provide engaging yields to do nicely within the close to time period. In that sense, the AUD seems nicely positioned as markets by the way don’t see the affect of US protectionism as a near-term risk and Beijing stimulus may also help some China proxies.”
