The US mid-term elections now seem like old news, with the US Dollar – which weakened in the aftermath of the Democrats regaining control of the House of Representatives – ending the week up 0.8% following another hawkish Federal Reserve Policy meeting. The Fed made pretty clear yesterday that it would mostly hike its policy rate 25bp at its December policy meeting – an outcome which markets are now fully pricing in.
The question is whether the market’s pricing of 50bp of rate hikes for 2019 is too low given the Fed’s hawkish bias and optimistic outlook for the US economy, too high given signs of a slowdown in US and global growth or just about right. Time will tell but at this juncture the Dollar does seem prone to greater volatility than a few months back.
Conversely, Sterling is ending the week on a soft note with growing concerns that even if the UK and EU manage to cobble a Brexit deal in the next fortnight it will be voted down by parliament. Both Remainers and Brexiteers within the House of Commons have been increasingly vocal about their criticism of the deal which Prime Minister proposed a couple of months ago and which has since been subject to a number of proposed revisions.
