The Trump trade was on full show yesterday with the USD gaining across the board and stocks rallying to new highs.
The EUR collapsed across the board on fears of what Trump's potential tariffs could mean for the eurozone, and sparked concern that perhaps the European Central bank (ECB) will have to cut interest rates even further than what's currently priced in.
AUD also weakened across the board over trade tariff fears.
Over in Germany, following the collapse of his governing coalition, Chancellor Olaf Scholz has called for a confidence vote on the 15th of January, as well as a snap election at the end of March.
*Daily move - against G10 rates at 7:30am, 07.11.24
** Indicative rates - interbank rates at 7:30am, 07.11.24
Both the Federal Reserve (Fed) and the Bank of England (BoE) are expected to cut interest rates from 5% to 4.75% today which has been largely priced in by markets. Even more important will be the post-decision commentary, which will reveal the future strategies both banks might adopt in their upcoming meetings.
With the BoE, the key will be whether they will be swayed by last week's budget or not. Last week's budget announcement by Rachel Reeves revealed a significant increase in borrowing, poised to sustain inflationary pressures within the economy. This development prompted markets to adjust their expectations, reducing the anticipated rate cuts over the coming year. Governor Bailey is expected to face questions regarding the economic impact of Trump's presidency and the potential effects of tariff policies. Markets currently are pricing 39% chance of another 25bps cut in December.
Fed Chair Powell will no doubt face a barrage of questions on what impact Trump's return to the White House will have on growth, inflation and borrowing costs. In recent weeks we have had some Fed commentators lean towards a potential pause in the Fed's rate-cutting cycle but this has yet to be priced in by markets. Currently, markets are assigning a 61% chance to a 25 basis point rate cut in December.
This morning, we've observed some investors cashing in on yesterday's USD gains. However, should the Fed strike a hawkish note today, we could see the USD rally reignite.
Our team of currency experts are here to help you get more from your money when making international payments. We will work with you to understand your payment needs and offer specialised guidance on the best options available to you. Over the last 19 years we’ve helped over a million customers and last year alone processed over £12bn. We’re tried and trusted, and we’re ready to help you.Have a great day.
