US DOLLAR FUNDAMENTAL FORECAST: BULLISH
- US midterm elections outcome, FOMC[1] rate decision drive Dollar upward
- Upbeat inflation data may boost Fed rate hike bets, adding to USD[2] gains
- Sluggish Brexit talks, jitters in Italy and Sweden may stoke haven demand
See our US Dollar forecast[3] to learn what will drive prices through the end of the year!
US midterm elections delivered as expected[4] last week, producing a divided Congress as the Democrats reclaimed control of the House of Representatives and sending the Dollar higher. While the currency initially wobbled[5], hopes for a bipartisan infrastructure spending effort that boosts growth and inflation – pushing the Fed into a steeper tightening cycle – ultimately translated into a reversal higher[6].
The policy announcement from the Federal Reserve was also helpful. The rate-setting FOMC committee was unusually brief in its pronouncement, conspicuously overlooking October’s market turmoil and accenting attention on the economy’s strength. That amplified tailwinds propelling the Greenback higher as markets concluded that Jerome Powell and company will not be easily persuaded to dial back tightening.
October’s US CPI report headlines the economic data docket in the week ahead. The headline on-year inflation rate is expected to rebound to 2.5 percent after sliding to a seven-month low of 2.3 percent in the prior month. US economic news-flow has increasingly improved relative to consensus forecasts recently, opening the door for an upside surprise that inspires another upshift in the projected Fed rate hike path.
Meanwhile on the external front, European politics are in focus. Brexit-related news flow will dominate at the beginning of the week. UK Prime Minister
