Markets remain fearful of a Donald Trump victory and the dollar is under pressure. Safe haven assets such as US Treasuries, the Japanese yen and gold are rallying, whilst higher risk plays such as equities are being sold. Moreover though, the dollar is corrective and this is impacting across the forex majors, with even the embattled sterling managing to rally against the greenback. In the past week, the Trade Weighted Dollar Index has dropped from 99.0 to 97.1, which is almost 2.0%. Even the Fed has done little to support the dollar, in spite of there being little change to the expectations of a rate hike. The Federal Reserve quite predictably chose to hold off from increasing the Fed Funds rate, given the proximity to the Presidential election. The FOMC believes the “case for an increase in the federal funds rate has continued to strengthen” but has chosen to “wait for some further evidence of continued progress”. Whilst there was no explicit point towards a December hike, there is little to suggest it will not happen. According to the CME Group FedWatch tool, the probability of a December hike remains above 70%. For now the dollar is running on politics and not economics or fundamentals. Non-farm Payrolls may create some volatility tomorrow but it is Trump’s polling that seems to be key right now.
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