The Democrats won the House while the Republicans held onto the Senate. The greenback lost ground but stabilized afterward. What’s next?
Here is their view, courtesy of eFXdata:
Bank of America Merrill Lynch Research discusses a review of the US mid-term elections which resulted in a split Congress where Democrats win the House but suffer Senate losses to the Republicans who retain their control of the Senate.
“As we have argued, tonight‘s split Congress outcome should result in dollar weakening. We think this could continue for a while yet as the first order effects of US growth deceleration and increasingly-limited monetary policy support cause a reevaluation of long USD exposure. Ultimately, second-order effects could limit USD downside; however, we think that markets are likely to focus on first order effects for now.
Initially, we expect a weaker USD predicated on a further softening in US growth leading to reduced monetary policy support…Looking beyond the initial reaction, however, we think that potential second-round effects could serve to limit USD downside,” BofAML argues.
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