Global Themes

The U.S. dollar recovered from its election night hangover as focus turned to the Federal Reserve. The dollar firmed Thursday against most rivals but was broadly little changed. The dollar slid after America’s midterm vote saw Republicans lose their congressional monopoly. The Democrats taking the House cast some doubt on the president’s agenda of bold fiscal stimulus, suggesting less octane for U.S. growth and perhaps fewer interest rate hikes from the Fed. The dollar bounced today though as economic and political risks remained elevated across the Atlantic, weighing on the euro and sterling. Today’s Fed announcement, due at 2 p.m. ET, may do little to jolt the dollar or wider FX markets with the central bank widely expected to hold borrowing rates at a range of 2.00-2.25%. Still, the Fed is likely to leave the door wide open to a December rate hike with the U.S. economy keeping in top gear.

USD

The U.S. dollar was flat to firmer after the latest jobless claims data matched market forecasts of 214,000, one of the healthiest prints in decades. The data offered more evidence of America’s labor market firing on all cylinders, a scenario that’s considered music to the Fed’s ears. No rate hike from a range of 2.00-2.25% is expected today. However, the strong economy, coupled with markets successfully navigating America’s midterm vote, points to a dollar-friendly fourth and final rate hike of the year on Dec. 19.

CAD

Canada’s dollar adhered to a tight range with few staking big bets ahead of a 2 p.m. ET policy decision today by America’s central bank. The loonie has failed to gain much traction of late with oil markets in a downturn which has increased headwinds on some commodity-influenced currencies. Oil is likely to have an outsized influence over the loonie over the coming week given the dearth of north of the border data.

GBP

Wavering optimism in Britain and Brussels reaching a timely trade deal blew the pound off its three-week peak. Meanwhile, the dollar’s short stint on its back foot after America’s midterm vote, coupled with a focus on the Fed today, also played out in a softer sterling. Britain’s third quarter economic report card, due Friday, will be the next fundamental factor to impact the pound. Growth likely accelerated to a 0.6% rate over the summer quarter after a 0.4% increase during the spring.

EUR

The euro surrendered a two-week high against the dollar after Europe issued a dimmer outlook for area growth. Fresh forecasts from the EU expect growth to moderate next year, due in part to headwinds from global trade tensions. The downbeat forecast reinforced expectations of a long, deep into 2019 wait for the ECB to raise borrowing costs from crisis lows, underscoring policy divergence with the U.S. whose central bank is expected to continue raising rates once a quarter over the foreseeable future.

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