The DXY Index surged by 1.7% to 105.15 on former president Donald Trump’s decisive win in the US elections. The Republicans retook the Senate amid a tight race to retain control of the House of Representatives. Expect some profit-taking after the largest single-day increase since November 2011.The futures market has already rolled back US rate cut bets by 100 bps, with the Fed Funds Rate halting at 3.75-4.75% in June 2025, above the 3.25-3.50% projected in the Fed’s dot plot. The market has priced in today’s 25 bps cut to 4.50-4.75%.
During the post-FOMC press conference, Fed Chair Jerome Powell can expect many questions regarding the implications of Trump’s tax cuts and spending plans for inflation and fiscal sustainability. Powell will likely keep to the Fed’s data-dependent stance in making decisions and await more clarity on Trump’s policy intentions after his inauguration in January 2025. Before this, Congress will need to raise the federal debt ceiling by the January 1 deadline.
GBP/USD fell alongside the rest of the world’s currencies on Trump’s victory but, again, found support at 1.29 on expectations of cautious BOE rate adjustments. We also anticipate the Bank of England lowering its bank rate by 25 bps to 4.75% today. CPI inflation fell to 1.7% YoY in September, below the 2% target for the first time since Covid. However, core inflation remained high at 3.2% in September. BOE Governor Andrew Bailey should address monetary policy in light of the controversial Budget announced on October 31.While the IMF backed Chancellor Rachel Reeve’s economic plan to boost public investment to drive growth, Moody’s warned that frequent changes to the fiscal rules could erode credibility. The Office for Budget Responsibility (OBR) reckoned the additional spending could provide a short-term lift to growth before crowding out business activity and investment and lifting inflation. 
EUR/USD depreciated by 1.8% to 1.0726 overnight, harder than the 1.3% decline in GBP/USD. The German coalition government collapsed after Chancellor Olaf Scholz sacked his finance minister, Christian Lindner, which resulted in the latter’s Free Democratic Party (FDP) withdrawing its ministers from the cabinet. Lindner rejected Economy Minister Robert Habeck’s multi-billion euro “Germany Fund” to stimulate investment and the IMF’s recommendation to relax Germany’s debt brake, which currently constrains the budget deficit to 0.35% of GDP. Expect more uncertainties after Scholz called for a vote of confidence in mid-January amid more economic challenges. This could tip EUR/USD below 0.83 towards a multi-year trendline support of around 0.82.
Quote of the Day
“It is not the strongest of a species that survives, not the most intelligent, but the ones most resilient and responsible to change.”
Charles Darwin
November 7 in history
The first cartoon depicting an elephant as the Republican Party symbol was published by political cartoonist Thomas Nast in 1874.
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