Monthly Wrap: USD – US dollar presses higher as global uncertainty outweighs US mid-term upset

Key takeaways:
–           Growing global uncertainty bolstered demand for safe-haven USD
–           US mid-term elections weigh, Trump’s fiscal policies expected to be blocked
–           USD Monthly lows: £0.75, €0.86, AU$1.37, NZ$1.44, C$1.29
–           USD Monthly highs: £0.78, €0.89, AU$1.42, NZ$1.54, C$1.32
 
Despite a couple of setbacks, the US dollar continued to march higher against its peers last month on the back of some solid US economic data and rising rate hike expectations.

In terms of data, USD found support from a robust payrolls report, a stronger-than-expected third quarter GDP report and a hawkish outlook from the Federal Reserve following its November policy meeting.

While domestic data certainty aided the US dollar’s ascension over the past four week its rise appears to be mostly down to a bearish shift in sentiment towards other currencies.

In particular, volatility in the pound and euro over Brexit and Italy’s budget has resulted in investors flocking to safe-haven assets, driving considerable inflows towards the US dollar.

However the US dollar did face a couple of corrections through the first half of November due to an easing of trade tensions, weak manufacturing figures and the US mid-term elections.

The mid-terms resulted in the Republicans ceding control of the House of Representatives to the Democrats, splitting Congress and dampening USD sentiment for fear it could block Donald Trump from pushing through any more tax cuts.

Looking ahead the Federal Reserve’s final policy meeting of the year is likely to be the main catalyst for movement in the US dollar in December.

Not only is the meeting expected to result in the Fed voting its fourth rate hike of the year, but the bank is also expected to outline its policy expectations for 2019, likely driving the US dollar even higher if the bank remains on course for multiple hikes next year.

Also of note will be a meeting between Donald Trump and Chinese President Xi Jinping at the G20 summit in Argentina later this month.

It’s hoped this meeting will lead to the two leaders making some progress towards resolving the ongoing US-China trade dispute, potentially clipping demand for the US dollar if it results in an upswing in risk appetite.