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U.S. Dollar’s Roller-Coaster Ride to Continue With U.S. Mid-Term Elections

James Hyerczyk
On Thursday, the dollar retreated against the majors especially the British Pound, which posted its biggest one-day gain in nine months on reports that London is close to sealing a financial services deal with Brussels. Additionally, the Bank of England kept interest rates on hold on Thursday but kept its options open and hinted at slightly faster rate increases if Brexit goes smoothly.

The U.S. Dollar rose to a 16-month high against a basket of currencies as concerns about global growth saturated the markets. World stocks sold off early in the week, beset by worries over corporate earnings and geopolitical uncertainty, spiking the U.S. Dollar Index sharply higher.

The greenback was also supported by expectations of additional rate hikes by the U.S. Federal Reserve in December and perhaps as many as three times in 2019.

The dollar was boosted mid-week as solid private sector jobs data supported the view that the U.S. economy is in strong shape and as concerns about Italy’s budget negotiations continued to weigh on the Euro.

Then the bottom fell out of the market. On Thursday, the dollar retreated against the majors especially the British Pound, which posted its biggest one-day gain in nine months on reports that London is close to sealing a financial services deal with Brussels. Additionally, the Bank of England kept interest rates on hold on Thursday but kept its options open and hinted at slightly faster rate increases if Brexit goes smoothly.

The dollar was hit even harder late Thursday/early Friday on the hopes that China would ramp up fiscal stimulus. The lifting of long U.S. Dollar hedges also contributed to the weakness. Investors sold dollar positions bought as a safe-haven asset after global equity markets soared following a tweet from President Trump that said he had a “very good” talk with Chinese President Xi Jinping on trade and North Korea and that the two planned to meet at the upcoming G-20 summit.

The greenback was pressured further on Friday after a Bloomberg report said Trump was seeking a trade agreement with Chinese President Xi Jinping. It was further supported by upbeat U.S. jobs data. U.S. jobs growth rebounded sharply in October and wages recorded their largest annual gain in 9-1/2 years, which should keep the Fed on track for additional rate hikes.

Safe-haven buyers returned late Friday, allowing the U.S. Dollar index to recapture some of its late-in-the-week losses after a senior Trump administration official dismissed the report of a possible trade deal with China as untrue, CNBC reported.

The roller-coaster ride last week, ended with the U.S. Dollar posting a gain against a basket of major currencies. The heightened volatility is likely to linger early next week with the U.S. mid-term elections on Tuesday, November 6.

For the week, the December U.S. Dollar Index settled at 96.343, up 0.215 or +0.22%.

This article was originally posted on FX Empire

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