Growing risk of more gradual Fed easing cycle, Trump victory in polls helping Dollar

Matthew Ryan, CFA Ebury

Fed governor Waller has been the latest committee member to call for a cautious approach to US rate cuts, saying that the economy is an a ‘sweet spot’ and that recent hotter-than-expected inflation data has not been welcome. Futures markets now see more than a 10% chance that the FOMC opts for no change in rates when it next meets on 7th November.

While we still think that the Fed is highly likely to cut, clearly there is now a greater risk of a more gradual easing cycle, and the dollar is receiving plenty in the way of upside as a result. We expect investors to start turning their attention to November’s US presidential election. Support for VP Kamala Harris appears to have waned in the past few days, with Trump now seen as a relatively clear favourite.

According to Polymaket, the former president now has around a 59% chance of winning next month, versus just 41% for Harris. This could potentially be helping the dollar on its way upwards, as markets are of the general opinion that a Trump presidency would be a positive outcome for the US dollar.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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