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During the European session on Monday, EUR/USD was trading cautiously around 1.0700, a more than four-month low. The major currency pair remains on edge as the election of Republican Donald Trump as US President strengthens the long-term outlook for the US Dollar (USD). The U.S. Dollar Index (DXY), which measures the dollar’s value against six major currencies, was higher near 105.00.
During his campaign, Trump vowed to raise import tariffs and lower tax rates, which would add to inflationary pressures and boost debt levels in the United States of America (U.S.A.). According to a Reuters poll conducted on November 6-7, 62% of respondents – including 94% of Democrats and 34% of Republicans – said that Trump’s policies are likely to “pull higher” U.S. Treasury Debt”.
The nonpartisan Committee for a Responsible Federal Budget said Trump’s tax cut proposals could add $7.5 trillion to the U.S. debt over the next decade.
Investors will be closely watching speeches from a host of Federal Reserve officials this week for new clues on possible monetary policy actions in December. According to the CME FedWatch tool, there is a 65% chance that the central bank will cut interest rates by another 25 basis points in December to 4.25%-4.50%. It would be the second consecutive quarter-percentage point cut by the Fed, which also cut its key lending rate last week.
On the economic front, investors will focus on U.S. consumer price index (CPI) data for October due out on Thursday. The impact of the inflation data on the interest rate outlook is expected to be only nominal, as Fed officials are confident of a disinflationary trend toward the bank’s 2% target. However, significant deviations from consensus may have implications.
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