A fork in the road for the dollar

The week just gone was a busy one for FX markets. The euro made gains, helped by stronger-than-expected inflation and growth data. Sterling struggled, in contrast. Despite delivering increased fiscal spending in her budget, Chancellor Rachel Reeves underwhelmed on the details, triggering market consternation. Meanwhile, the dollar eased throughout the week, as Middle East tensions faded. Even so, a large downside payrolls miss on Friday was largely discounted given strike and hurricane distortions, and an upcoming presidential election.

Indeed, it is the race for the White House that is likely to hold market attention next week, with polling day on November 5th. Harris and Trump have put forward very different visions for the country, with divergent consequences for the dollar. A Trump win would likely see continued growth exceptionalism, higher rates, and a stronger greenback. A Harris victory would instead see falling US rates as the US economy continues to cool, leaving the dollar trading in the middle of its smile. Outside this, five G10 central banks are set to deliver policy decisions. But none will be as consequential for FX markets as the outcome of the presidential election.

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Authors: 

Nick Rees, Senior FX Market Analyst

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