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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, tonights 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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