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Currency Market Mean Reversion Continues, Weakening Dollar

The “Trump trade” that animated currency markets after Tuesday’s presidential election continues to dissipate this morning. The dollar’s post-election rally is now almost fully unwound, the Mexican peso and its emerging market brethren are broadly higher, and most major currencies – including the euro, British pound, and Japanese yen – are either above, or just a few basis points below key psychological levels that could support further upside. Treasury yields are slightly lower after the Federal Reserve kept its options open in yesterday’s decision. Officials cut rates by a quarter percentage point and made semantic modifications to the accompanying statement...

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Trump 2.0 & the AUD

The decisive victory by former President Trump in the 2024 US election and elevated odds the Republicans also sweep Congress has generated bursts of market volatility over the past few sessions. This might be a taste of things to come. The election result shouldn’t be viewed as a ‘shock’ as it was 8 years ago. The outcome was in line with the signal various opinion polls and probability gauges had been pointing to for several weeks. Nevertheless, as we had forewarned in our prior research, a Trump win (particularly if it was compounded by Republican victories in both chambers of...

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Cool your jets

• Market swings. US equities powered ahead, while bond yields & the USD gave back some of their post US election gains. AUD & NZD rose.• Central banks. BoE & US Fed cut rates. Fed still on a path towards ‘neutral’. In time Trump policies may constrain its ability to lower rates as far as it thinks.• China measures. AUD & other cyclical assets also boosted by expectations China will announce more stimulus. Will China underdeliver again? A reversal of fortunes across most asset classes over the past 24hrs as markets cooled their jets a bit about President Trump’s second...

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Fed Delivers Quarter-Point Cut, Arguably Adopts Less-Dovish Tone

As had been widely anticipated, the Federal Reserve cut its benchmark borrowing rate by a quarter percentage point this afternoon, and cautious language in the statement points to a more gradual pace of easing ahead. The Federal Open Market Committee voted unanimously to lower the target range for the federal funds rate to 4.5 to 4.75 percent, with Governor Bowman moving back into line with the consensus after dissenting in favour of a similar-sized move in September. In the statement setting out the decision, officials noted “economic activity has continued to expand at a solid pace,” before saying “Since earlier...

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Trump Trade Eases, Dollar Retreats

Market momentum is fading this morning after investors speed-ran the “Trump trade” in yesterday’s session. The trade-weighted dollar is retreating after recording its best day in more than two years, with the Canadian dollar, euro, pound, and yen all up roughly half a percentage point while the Mexican peso – widely considered a proxy for US isolationism risks – trades above pre-election levels. Treasury yields are easing somewhat, North American equity futures are consolidating gains, and oil prices are weakening. The pound is pushing higher after the Bank of England cut interest rates for a second time but raised its...

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