We are entering the most important week of the year for the markets. The US elections will come to an end on Tuesday, followed by a frantic counting of votes. Later on Thursday, the Federal Reserve System (Fed) will make a decision on interest rates.
Harris or Trump?
I think the best way to sum up the last pre-election madness is the fact that over the weekend, many truly serious analysts pondered what impact the death of a squirrel might have on the election results. It would indeed be a twist of fate if a rodent were to decide who will occupy the White House. Voting closes tomorrow and the markets really have no idea who will win the race. Previous optimism under the title “Trump Trade” has pretty much evaporated, especially since the latest polls again boost Harris. However, we are still in the range of statistical error, which means that market volatility can be high during vote counting, especially in the so-called swing states. A lot has been said that Pennsylvania will be key to these elections, not only does it provide the most electorial votes in these uncertain states, but historically, whoever won there usually moved in to Washington.
In the calendar trap
It must be said that the setting of the November FOMC meeting was at least unfortunate. Two days after the elections, there is a risk that we will not yet know the official winner. And it has been speculated for a long time that the new president will play a significant role when it comes to decisions about the cost of money. Trump’s promises are clearly more inflationary, so his victory should temper the dovish tendencies of Powell and his team. However, it is not only the election noise that is not helping the Fed, but also the one related to the recent hurricanes. It is not entirely clear how big an impact they had on the disastrous readings from the American labor market. The dramatic NFP decline should incite a stronger cut in interest rates and the market even tried to play this scenario at first on Friday. Eventually, it was acknowledged that decision-makers will not undertake drastic decisions during such a volatile period. From contracts, it is clear that the FOMC will decide on a standard cut of 25 basis points, which is considered a ‘safe’ scenario. With this in mind, the December meeting will be in focus.
Dollars on sale
We are entering a week with quite anti-dollar sentiments. The American currency is weakening across the majority of the market. The Euro-Dollar rate at the beginning of the session jumped to $1.09, making use of most of the potential correctional movement for the wave from the first half of October. The zloty is also playing out the weakness of the dollar, where the USDPLN rate has broken through the barrier of 4.00 zlotys. The common currency is also getting cheaper, now costing 4.345 zlotys. In the backdrop of American events this week, there will also be a meeting of the Monetary Policy Council (MPC), but investors are not particularly concerned about this fact. Other central bank meetings will also take place this week, but only the British have a chance of breaking the American monopoly on media attention.
Author: Krzysztof Adamczak, Currency Analyst at Walutomat.pl
Source: https://ceo.com.pl/najwazniejszy-tydzien-w-tym-roku-wybory-w-usa-decyzja-fed-i-rekordowa-zmiennosc-na-rynkach-91737
