Economic Outlook: Impact of Fed’s Guidance and US Election on USD
As the Federal Reserve prepares to announce its guidance and policy decision, all eyes are on whether the recent selloff in the USD is justified. According to Rabobank’s Senior FX Strategist Jane Foley, the upcoming US election will play a crucial role in shaping the future of the greenback.
Trump Presidency vs. Harris Victory: Implications for USD
- Under a Trump presidency, the inflation impulse is expected to be stronger due to his stance on tariffs and tax cuts, potentially leading to a halt in the Fed’s easing cycle next year.
- If Harris wins the election, it could signal a series of Fed rate cuts, resulting in a softer outlook for the greenback compared to a Trump presidency.
Global Factors Influencing USD Performance
While the US election outcome will impact the USD, the performance of other currencies also plays a significant role in shaping its future. The upcoming Bank of Japan (BoJ) policy meeting will provide insights into potential rate hikes, influencing the USD/JPY pair.
- Rabobank recommends selling USD/JPY on rallies, considering the diverging policy directions of the BoJ and the Fed.
- The European Central Bank’s (ECB) policy aligns with the Fed’s, but a sharp rise in EUR/USD could prompt the ECB to accelerate its easing measures.
EUR/USD Forecast: Resistance at 1.12 Level
Given the contrasting policy directions of major central banks, Rabobank predicts that EUR/USD will face strong resistance at the 1.12 level. The outcome of the US election and global economic factors will continue to shape the future of the currency pair.
Analysis and Implications for Investors
The interplay between the Fed’s guidance, the US election outcome, and global economic factors will have a significant impact on the USD and major currency pairs. Investors should closely monitor developments and consider the following implications:
- Under a Trump presidency, a stronger inflation impulse could lead to a halt in the Fed’s easing cycle, affecting the USD’s performance.
- A Harris victory may result in a series of Fed rate cuts, shaping a softer outlook for the greenback compared to a Trump presidency.
- Global factors, including the BoJ’s policy direction and ECB’s easing measures, will influence the performance of USD crosses.
- Rabobank recommends strategic selling of USD/JPY on rallies due to diverging policy directions of major central banks.
- Investors should monitor EUR/USD resistance at the 1.12 level, considering potential ECB responses to currency fluctuations.