Americans are voting and politicians are anxious about the results of the Mid-Terms. But how much will it move the US Dollar?
Here is their view, courtesy of eFXdata:
MUFG discusses the USD outlook in light of today’s US mid-term elections.
In summary, we have assumed in our US dollar forecasts that the mid-term elections will result in a divided Congress. The consensus view shared by market participants is also similar. If the Republicans lose the House but hold on to the Senate as expected, political gridlock is likely to prevent further stimulus. The boost to growth from the fiscal stimulus is expected to have faded away by the end of next year while tightening monetary policy will provide more of headwind to growth. As a result, the current cyclical support in favor of a strong US dollar should start to reverse in 2019. However, the immediate US dollar negative response to the mid-term results should prove limited as it is an outcome that is already widely expected,” MUFG argues.
“In contrast, there would be larger immediate US dollar response if either: i) the Republicans held on to both the House and the Senate or ii) the Democrats took back control of both the House and the Senate. Of the two alternative scenarios, the Republicans “hold” is more likely. We expect the US dollar index to strengthen by around 1-2% in the following few trading sessions if the Republicans remain in control of Congress,” MUFG adds.
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