Fed unlikely to 'rock boat', 25bp cut with little reference to election

The Dollar is trading higher against almost every currency globally this week, as markets brace for a Trump presidency and Republican clean sweep in Congress. For now, of course, nothing changes. President Biden will remain in the top job until early next year, and we will have to wait until 20th January 2025 for Trump’s inauguration.

Yet, we still see room for fresh upside in the dollar between now and then. So far, we would perhaps argue that the moves in the FX market have been somewhat contained relative to expectations from some quarters, and it may take a few days for markets to correctly position themselves for Trump 2.0, which may present room for some fresh USD upside.

In our view, the main adjustment in market bets will centre around Federal Reserve rates. Tonight’s Fed meeting is probably unlikely to rock the boat too much. We expect the FOMC to deliver a 25bp cut. Powell may touch on the election, but we do not expect members to draw too many conclusions just yet. This could mean a rather neutral stance that neither confirms nor denies expectations for another rate reduction in December.