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The FX Trader: Trump’s imperial presidency in ruins. What next for USD?
Résumé: The USD is slightly weaker on the US election results rolling in overnight, which show a massive rebuke of Trump’s presidency and will mean potential gridlock for policy and endless investigations of the president over the next two years, though he retains considerable power. For now, we have the US jobs report to focus on this Friday after the election results are tallied. And three central banks are meeting today and tomorrow, starting with Sweden’s Riksbank.
US mid-terms: It was not just a blue wave, but a blue tsunami for Democrats.
The US midterm elections have delivered a ten-ton rebuke to President Trump, with Democrats set to take even stronger control of the Senate than expected, and the House majority will be larger than expected as well. Votes are still being counted, but the scale of the swing is staggering, particularly in states that were firmly for Trump just two years ago.
Polls suggested that affordability was a pivotal issue, especially the surge in fuel and diesel prices that has hit agricultural states and their surrounding communities particularly hard. Iowa, which voted for Trump by 13 points in 2024, has flipped to the Democrats in the Senate race, while Kansas, which Trump carried by 16 points, also looks set to go the Democrat there. And I am rubbing my eyes as I see that South Carolina is being called for Democrats, and the Mississippi race is a dead heat. The House picture is set to deliver a landslide for the Democrats as well, with the early tally of called seats by the New York Times already giving the Democrats an outright majority of 221 seats called to the 129 for Republicans. The Democrats could end up with the largest House majority since the early 1990’s.
Markets initially responded with a strong sell-off in risk sentiment, although the reaction was already fading as of writing, while currency moves have been relatively muted. The US dollar is mildly weaker alongside lower Treasury yields, offering USDJPY some respite after yesterday's pull and running of stops in the important 158.50 area.
Now we have two major uncertainties to contend with and a third minor one: first, whether the midterms clear the way for renewed US military action against Iran or whether these negotiations can produce a sustainable peace – even if for only a matter of weeks? We remain skeptical of a sustained peace as long as Iran’s regime remains in place. Second, Treasury Secretary Bessent has signalled that the administration could accelerate fiscal consolidation during the lame-duck session before the new Congress takes office on January 3. The prospect of a sharp fiscal squeeze could hit risk appetite. Third, we have incoming US data through the end of this week, with the ISM Services up today and the jobs report up on Friday.
Bottom line: The US dollar reaction was modest. A more sustained bearish USD outlook needs a clearer signal from the economy, Fed policy or the Treasury's fiscal plans – or for these dramatic theories of a structural shift in the Treasury/Fed to take shape. More on that in coming updates.
Chart: EURUSD
The Euro has been very weak, and yet it appears EURUSD is trying to build a base here. The first key for any upside hopes, however, is a close clear of the 1.1270 area, perhaps post-US jobs report this Friday, but more follow through would be needed above the old 1.1325 low from the summer to suggest something bigger is building here. If we stay bottled up in this lower range, the bear move may not be finished and 1.10 must be brought back into the conversation.
Three central banks ahead: Riksbank, Norges Bank and Bank of England
Three central bank meetings across Europe over the next two days, with the Riksbank up first today and the Bank of England and Norges Bank following tomorrow. The decisions aren’t driving drama as much as the guidance, which could be important for all three, especially given that all three of GBP, NOK and SEK have moved strongly recently.
Riksbank: strong SEK tempers hawkish potential
The Riksbank is expected to hike 25 basis points, taking its policy rate to 2.00%. The Swedish economy has recovered more strongly than expected, with the Riksbank upgrading its 2026 GDP growth forecast to 2.8% in September. However, underlying CPIF inflation excluding energy was running at just 0.5% in September. The SEK recovery from the 11.36+ to below 11.00 means currency weakness concerns are off the agenda, but still looking toward 10.50 for SEK even if the Riksbank fails to make hawkish waves with their guidance.
Norges Bank – scope for dovish guidance and NOK consolidation
Norges Bank is expected to leave its policy rate unchanged at 4.50%. Norwegian front-end rates have fallen sharply, suggesting the market is looking for a less hawkish stance, despite September core inflation still running at 3.0%. The September meeting also showed differences of opinion on the need for further tightening. With energy prices retreating and NOK sitting atop a powerful rally, the currency may be due for consolidation. NOKSEK downside is an interesting possibility, particularly if the Riksbank proves somewhat more hawkish than expected while Norges Bank validates the recent repricing of Norwegian rates.
Bank of England – Bailey pushing back against market pricing
The BoE is widely expected to hike 25 basis points to 4.00% tomorrow, but Governor Bailey has repeatedly pushed back against the extent of further tightening priced into the forward curve. The key question is whether the BoE can deliver the expected hike without encouraging expectations for an aggressive tightening cycle. We see limited potential for a hawkish surprise in the guidance, with EURGBP looking increasingly vulnerable to a squeeze higher if the market trims expectations for additional BoE hikes. Further EURGBP downside might require more Eurozone existential distress, which has gone a bit quiet for now.
FX Board of G10 and CNH trend evolution and strength.
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The euro remains weak, but its weakness has faded in relative terms over the last few trading days. Elsewhere, kiwi got a drubbing from the RBNZ skipping on hiking rates, but AUD has more negative momentum at the moment after the RBA’s dovish guidance shift. The NOK strength is very long in the tooth – wondering if the Norges Bank and seasonality could work against the currency into year end, provided energy prices stay orderly. The USD and JPY are the most directionless currencies in recent days.
Table: NEW FX Board Trend Scoreboard for individual pairs. AUDJPY is in danger of a negative trend flip here – although a look at a chart and the directionless overall JPY reading will have trend traders standing aside here (big comeback from an overnight sell-off as well.). Elsewhere, AUDUSD is trying to restart the downtrend, USDCHF is in a downward trend and USDJPY has also flipped back to positive this week, though with massive overhead resistance to contend with.