EURUSD trades cautiously near more than four-month low around 1.0700 on Monday. The major currency pair remains on tenterhooks as the election of Republican Donald Trump as US President has strengthened the US Dollar’s outlook in the long run. The DXY Dollar Index, which gauges the greenback’s value against six major currencies, edges higher to near 105.00.
Trump vowed to raise import tariffs and lower taxes in his election campaign, which would add to US inflationary pressures and boost debt levels. According to a November 6-7 Reuters poll, 62% of respondents – including 94% of Democrats and 34% of Republicans – said that Trump’s policies likely “will push the US national debt higher.”
Trump’s tax cut proposals could add $7.5 trln to the nation’s debt over the next decade, according to the nonpartisan Committee for a Responsible Federal Budget.
This week, investors will pay close attention to speeches from a slew of Federal Reserve officials to get fresh cues about the likely monetary policy action in December.
According to the CME FedWatch tool, there is a 65% chance that the central bank will cut interest rates again by 25 basis points (bps) to 4.25-4.50% in December. This would be the second quarter-to-a-percent interest rate cut by the Fed in a row, as it also reduced its key borrowing rates last week.
On the economic front, investors will focus on the US Consumer Price Index (CPI) data for October, which will be published on Thursday. The impact of the inflation data is expected to be nominal on the interest rate outlook as Fed officials are confident about the disinflation trend towards the bank’s target of 2%. However, a significant deviation from the consensus could impact the same.
The Euro’s outlook is uncertain due to expectations of a global trade war after Trump’s victory. In the election campaign, Trump warned that the European bloc would have to pay a big price for not buying enough American exports, with the impact of Trump’s victory noticeable on European economic leaders.
See video: Donald Trump and foreign policy
Speaking at the EU Summit on Friday, former ECB President Mario Draghi said, “the sense of urgency today is greater than it was a week ago,” according to Reuters.
Domestic problems in the Eurozone’s major members have also weakened the Euro’s appeal.
The collapse of the German three-party coalition has come at a time when the economy is going through a rough phase. The nation managed to dodge a technical recession after expanding surprisingly by 0.2% quarterly in Q3, according to data released by the Federal Statistics Office of Germany on October 30. However, political uncertainty could lead to postponement of government spending and investments.
Meanwhile, investors look for fresh cues about the ECB’s likely interest rate action in the December meeting.
ECB policymaker and head of Austrian National Bank Robert Holzmann said there is no reason for the central bank to not cut interest rates next month at current point of time, however, the decision will be based on the economic data, which will be available in December.
EURUSD chart by TradingView
(Source: OANDA)
