The impact of the US midterm elections faded further on Thursday. The forecasts of the EC accentuated the difference in view between the EU and Italy on next year's Italian growth and on the country's budgetary performance. It was a marginal negative for the euro. In US trading, the dollar captured a better bid going into the Fed decision. The FOMC left the policy rate unchanged. The statement was little changed. Further gradual rate increases are likely. The USD-rally accelerated after the Fed decision. EUR/USD closed the day at 1.1363. USD/JPY finished at 114.07. The rise in US yields and the dollar also weighed on US equities. This morning, Asian equities are also trading in the defensive in the wake of yesterday's Fed decision. Chinese equities continue to underperform. Most regional currencies are losing ground, but the decline remains orderly. USD/CNY trades near 6.9450. The dollar is well bid across the board. EUR/USD trades in the 1.1345 area. USD/JPY is trading just below 114. Today, there are few data in Europe. In the US, producer prices and U of Michigan Consumer confidence will be published. PPI is expected at a modest 0.2% M/M and 2.5% Y/Y. Michigan confidence is expected to hold slightly below the cycle peak. We don't see much reason for a negative surpise. The question is whether the ‘formal' confirmation of further Fed rate hikes will be enough to push US (10-y) yield and the dollar beyond next resistance. The jury is still out. However, with the US 2-y yield nearing 3.0%, the dollar looks quite well protected. Earlier, this week, uncertainty on the US election weighted on the dollar. EUR/USD rebounded 1.13 area to the 1.15 area, but the dollar correction had no strong legs. EUR/USD is again heading for the bottom of the 1.1621/1.13 trading range. A sustained break is not evident, but USD momentum remains constructive. Lingering tensions on Italy remain a euro negative short-term. USD/JPY is also nearing the 114.54 top. A break might be less easy if sentiment on risk remains soft.

Sterling profited this week from headlines that a Brexit deal might be close, even a the issue of the Irish boarder remains a high hurdle. There are also plenty of UK data today including the Q3 GDP. Day-to-day sterling momentum remains positive. EUR/GBP nears/tests the (0.8723/0.8681/0.8621)-support. We have the impression that sterling already discounts quite some good news. Further sterling gains might be become more difficult, unless PM May can prove that her cabinet will approve a deal.


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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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