The US Dollar is likely to weaken due to the December rate hike already being priced in and market fatigue on the issue, say analysts at BNP Paribas.
The build-up of Dollar long positions has accelerated too far too soon, say BNP Paribas, and this could leave the currency at risk of a pull-back.
In addition, their STEER valuation framework indicates bullish themes for the Greenback such as heightened expectations of an interest rate hike by the Fed in December are now on the “rich” side.
“We expect data and Fed communication this week to be generally consistent with the Fed moving towards a December rate hike, but with this outcome already about 70% priced in by rates markets and a full six-week intra-meeting period still ahead we do not expect much further near-term adjustment higher in rate support for the dollar,” they said in their note.
Political Risk In Driving Seat
Whilst the outlook for interest rates continues to be a significant theme for the Dollar, the impact of politics has now also started to take over as the most important driver of the dollar.
It was the first time since May that Trump had led the poll.
The tables started to turn on Friday when Clinton was faced with a resurgence of the email scandal which has dogged most of her campaign.
The FBI decided to reopen the investigation into her use of a personal email address for sensitive work state work when she was secretary of state.
It appears she preferred using her own email address for both work and private use rather than have two accounts one for work and one for private.
The reason given by Clinton was that the Blackberry the government provided her for work only allowed access to one account.
The FBI have been investigating whether her use of a private email address on an unsecured server posed a security threat given the potentially sensitive information held in the emails.
It appears a new batch of previously undiscovered emails was discovered last week and that explains why the case was reopened by the FBI on Friday October 27.
The dollar has weakened on Trump’s recovery in polls due to the scandal as his protectionist policies are seen as liable to weaken the economy and cause uncertainty around the globe.
Two major barometers of market risk – the S&P 500 and Gold both reacted in volatile swings following his winning poll result, with the S&P selling off 21 points in out of hours futures markets and Gold shooting to a 1 month high.