• USD Strength Maintained: The dollar holds recent gains as a Republican sweep bolsters confidence, and news of Robert Lighthizer’s potential return signals a tough trade stance.
• Trade Policy Uncertainty: Trump’s trade agenda may unfold by 2025-2026, with possible earlier tariffs; previous policies supported a strong dollar, resisting intervention.
• Dollar Bullish Outlook: While some predict a year-end dip due to seasonal factors and Fed policy shifts, Republican wins could support dollar strength through increased U.S. consumer and business confidence.
• EUR/USD Soft on ECB and German Politics: Weak EUR/USD reflects German political instability and expectations for a larger ECB rate cut, widening the gap in favor of the dollar.
• GBP Holds Steady on UK Data Focus: Sterling remains resilient with limited easing anticipated; key wage and employment data and Bank of England speeches are in focus for the week.

USD: Dollar Holds Ground Amid Republican Gains

This Monday morning, the global FX market shows the dollar keeping recent gains, fueled by expectations of a Republican win across the board. China’s fiscal stimulus has yet to boost global recovery. On Friday, the dollar strengthened slightly in Europe following news from the Financial Times that Donald Trump is considering reappointing Robert Lighthizer as his trade representative. Known for his tough stance on trade, Lighthizer would likely oversee new trade investigations and tariff recommendations. While the market anticipated this choice, his return emphasizes Trump’s firm approach to trade.

The timing of Trump’s potential trade policies remains a key question. Expectations are that new tariffs could roll out by late 2025 or early 2026, allowing time for required trade investigations, though some reports suggest they may arrive sooner. Lighthizer previously advised Trump to intervene by selling the dollar to support U.S. manufacturing, though Trump resisted. The dollar could see occasional support speculation, especially if it strengthens significantly, yet Trump’s overall policies tend to support a strong dollar.

For dollar bears, a delay in tariff enactment, the Fed’s move toward less restrictive monetary policy, and seasonal patterns suggest a potential softening of the dollar by year’s end. However, we disagree, anticipating that Republican victories will lift U.S. consumer and business confidence while dampening sentiment globally. Tariff uncertainties often suppress business investment, making a strong dollar more likely into year-end.

After today’s Veterans Day holiday, the U.S. focus shifts to Republican House victories, stubbornly high core CPI, and strong October retail sales—all favorable for the dollar. The DXY could consolidate in the 104.50-105.50 range but may break upward soon.

EUR: German Politics and ECB Action in Focus

The EUR/USD remains soft around 1.07, with eyes on German politics. A possible December no-confidence vote could lead to a snap election as early as February. A swift fiscal shift in Germany seems unlikely, putting pressure on the European Central Bank (ECB) to support the economy. Our team expects a 50bp ECB rate cut in December, while markets currently anticipate 28bp.

The two-year EUR/USD swap rate gap remains notably wide, favoring the dollar by 170bp. EUR/USD strength seems unlikely to hold above 1.0750 and may drop toward 1.0600.

GBP: UK Data and BoE Speeches Take the Stage

Sterling is holding up well, as markets only anticipate mild easing. The UK, with its trade deficit with the U.S., may not be central in a trade conflict.

Outside U.S. politics, UK focus this week includes data and Bank of England speeches. Key wage and employment data releases are due, and BoE Governor Andrew Bailey is set for an important speech on Thursday. With a resilient UK economy and potential inflationary impacts from Trump’s policies, Bailey may avoid hinting at faster-than-expected rate cuts.

EUR/GBP is comfortably below 0.8300, and if our eurozone team’s ECB forecast holds, 0.8200 is likely before year-end.