Dollar Strengthens on Election Hopes, Euro and Pound Weaken (11-15 November)

The dollar index closed higher with expectations of inflationary policies under Trump’s presidency.

The euro weakened due to political uncertainty, below-target inflation, and Trump’s victory. The pound also declined following the rate cut but recovered slightly.

Non-yielding assets suffered losses as Trump’s election raised hopes for higher interest rates. Concerns about US-China tensions pressured silver prices, given China’s role as the largest importer.

US 10-year Treasury yields initially surged but retreated, while 2-year yields closed higher for the week.

RBA Interest Rate Decision (Nov)

The Reserve Bank of Australia (RBA) kept its cash rate at 4.35% during its November meeting, maintaining borrowing costs for the eighth consecutive time, as expected. While headline inflation has dropped and is projected to stay low, core inflation remains high, prompting caution about inflationary pressures. The RBA noted monetary policy will remain restrictive until inflation is confidently on track toward the target. Signs of increased Q3 household spending were observed, but a slower rebound could lead to weak growth and labor market issues. The interest rate on Exchange Settlement balances stayed at 4.25%.

S&P Global Services PMI (Oct)

US service providers saw solid business growth as Q4 began, with new orders maintaining September’s pace despite weaker international demand. Business activity expectations rose from a 23-month low, but companies reduced staffing slightly amid future demand uncertainty. The S&P Global US Services PMI Business Activity Index indicated strong growth in October, slightly down to 55.0 from 55.2 in September, marking 21 consecutive months of expansion. New orders increased for the sixth month, though export growth was slower due to subdued demand.

ISM Non-Manufacturing PMI (Oct) 

In October, the Services PMI reached 56%, up by 1.1% from September’s 54.9%. This marks the eighth occasion this year that the composite index has remained in expansion territory.

BoE Interest Rate Decision (Nov)

The Bank of England cut its Bank Rate by 25bps to 4.75% in its November 2024 meeting, the second cut since August. Eight of nine MPC members supported the move, exceeding the expected seven votes, with Catherine Mann dissenting.

Initial Jobless Claims 

For the week ending November 2, seasonally adjusted initial unemployment claims rose to 221,000, up 3,000 from the prior week’s revised 218,000. The 4-week moving average fell by 9,750 to 227,250, compared to the revised 236,500 from the prior week, which was adjusted up by 500 to 237,000.

Fed Interest Rate Decision

At its November 2024 meeting, the Federal Reserve cut the funds’ target range by 25bps to 4.5%-4.75%, following a 50bps cut in September, as expected. Policymakers reiterated their data-driven approach for future rate adjustments. Chair Jerome Powell stated that the Fed will decide on a meeting-by-meeting basis and may pause rate cuts in December, depending on incoming data. He noted that Trump’s election victory would not impact the Fed’s near-term policy and emphasized that the Fed does not speculate on future government actions.

Currencies

The euro ended the week lower against the US dollar due to concerns over the Eurozone’s economic outlook following Trump’s election win and German political instability. The Japanese yen was flat against the dollar as BoJ minutes showed consensus for rate hikes, though strong wage data and global uncertainties cast doubt on this. The pound fell after the BoE’s expected 25bps rate cut, supported by 8 of 9 members, and expectations of a 0.5 percentage point inflation rise from the Labour Party’s budget. The Chinese yuan weakened amid concerns over Trump’s return, prompting a 10 trillion yuan stimulus package. The Australian dollar remained flat, with hawkish RBA signals and expected Chinese stimulus balancing the impact of Trump’s election.

Commodities

Precious metals had a tough week, ending lower. Trump’s re-election drove expectations of inflationary policies, raising 10-year Treasury yields and the dollar index, which pressured non-yielding metals. Concerns over strained US-China relations and potential impacts on China’s economy, the largest importer of silver, also weighed on silver prices.

Equities

The S&P 500 and Dow Jones rose nearly 5%, while the Nasdaq gained similarly, surpassing its July peak. The rally was fueled by the election conclusion easing political uncertainty and expectations of expansionary policies under a potential Trump administration, along with hopes for reduced geopolitical tensions. Nvidia led the rally with a 9% surge to a new high, followed by Google and Netflix, both up 5%. Apple, Microsoft, and Meta each rose about 3%.