- Trump victory raises expectation of policy-induced inflation, forcing Fed to keep policy restrictive for longer.
- FOMC meets on Thursday with a 25 bps cut priced in.
- US economy continues to grow at or above trend.
The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, surged to a four-month high after former US President Donald Trump secured the necessary electoral votes to become the next US president.
The US Dollar Index trades above 105.00 on Wednesday, the highest level since early July, following a steep rise against most major peers. Trump’s victory has fueled expectations of his policies, including tax cuts, deficit spending and tariffs, which are anticipated to spur inflation and constrain the Federal Reserve (Fed) from implementing a more dovish monetary policy.
Daily digest market movers: US Dollar rising on Trumps victory
- Markets had anticipated the victory as the US Dollar, UST yields, and US equity futures rose throughout the night, supported by the so-called “Trump Trade”.
- This implies more inflation under a Trump presidency than otherwise, forcing the Fed to keep policy restrictive for longer.
- Historically, the US Dollar has benefitted the most under a Republican president, a Republican Senate, and a Democratic House.
- The two-day FOMC meeting begins on Wednesday and should end with the expected 25 bps cut.
- Despite a distorted jobs data, the US economy is growing robustly and the labor market remains in solid shape.
- October ISM services PMI was stellar, reflecting robust consumption as we move into Q4.
DXY technical outlook: DXY breaks out to highest level since July
The DXY index witnessed a surge to multi-month highs, driven by bullish technical indicators. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) approach overbought territory, signaling a potential short-term correction. Wednesday’s significant price action suggests consolidation before further upward momentum
Key support levels lie at 104.50, 104.30 and 104.00, while resistance faces at 105.50 and 106.00.
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