Home Daily Commentaries US dollar slips as markets await midterm results

US dollar slips as markets await midterm results

Daily Currency Update

It was a good day for the pound yesterday with GBP/USD pushing back above 1.15 after being as low as 1.1150 only last week. There was some broad dollar weakness seen in the markets as Americans went to vote in the mid-term elections. However, it may have been rumours about compromises being neared regarding Northern Ireland's trading arrangement that was the catalyst for the pound’s move higher. The reasons aren't clear for the pound’s ascent however should there be a resolution to the UK/EU impasse over border checks on goods entering Northern Ireland this should add support to sterling. The only event of note yesterday from the UK was a speech from the Bank of England's Chief Economist, Huw Pill who reiterated that the UK should brace itself for further interest rate hikes to combat the current double-digit level of inflation. Looking ahead it’s another quiet day with Friday morning’s first estimate of third quarter GDP the next big domestic data set. The publication is likely to show that the UK economy is slipping into recession with a quarterly contraction of -0.5% expected. GBP/USD is at around 1.1560 with GBP/EUR at 1.1470.

Key Movers

The results are still being counted in the US midterm elections however it seems that the Republicans are predicted to take control of the lower house, the House of Representatives albeit by a slimmer margin than many had forecast. Both the House of Representatives and the upper house, The Senate, are currently controlled by President Joe Biden's Democrat Party so the impact on the dollar should they lose will be interesting to note. On one hand it will mean passing legislation will be harder for Joe Biden. However, the prospect of compromises having to be met to get laws passed may be well received by markets. The voting in some states/districts is too close to call so it may be a few more weeks before results are finalised. Either way, given the global geopolitical situation regarding Russia's invasion of Ukraine creating a humanitarian crisis and forcing European energy prices through the roof, we shouldn't expect a big reversal in the US dollar’s fortunes given its safe haven status. Another factor keeping the dollar propped up is that it seems China will be continuing with its zero-Covid policy for the time being despite some recent reports implying that officials were considering an easing of rules which has seen large swathes of the country locked down at short notice. Midterms aside it’s a pretty quiet day on the data front however, tomorrow’s US inflation data will closely be monitored. CPI is expected fall back to 7.9% y/y from 8.2%; markets will likely be more focused on the core reading which strips out volatile food and energy prices. This is expected to fall slightly to 6.5% y/y. Should it fall further then it could lead to some US dollar weakness as it may give the opportunity for the Federal Reserve to slow the pace of interest rate hikes a little. EUR/USD is at around 1.0060 after falling just short of the 1.01 level yesterday evening.

Expected Ranges

  • GBP/USD: 1.1430 - 1.1600 ▲
  • GBP/EUR: 1.1380 - 1.1560 ▼
  • GBP/AUD: 1.7620 - 1.7800 ▼
  • EUR/USD: 0.9960 - 1.0100 ▲