The EUR/USD is trading above 1.1400 but far from the highs of 1.1500 seen on Wednesday. The US Dollar was on the back foot after Democrats won the House of Representatives in the US Mid-Term Elections. This result, alongside with Republicans retaining the Senate, was expected. A split government implies limits to President Trump’s policies that have boosted the greenback in 2018.
The next significant event on the agenda is the rate decision by the Federal Reserve. The event was moved to Thursday due to the elections. This decision is the last one without a press conference by Chair Jerome Powell.
The central bank is expected to leave the interest rate unchanged at 2-2.25% but will probably leave the door wide open to an increase in December. The economy is growing at a satisfactory pace, and wage growth has accelerated to 3.1%. On the other hand, business investment disappointed and inflation is not overheating, leaving room for a gradual approach.
The Fed decision also serves as a reminder for the monetary policy divergence between the US and the euro-zone. Growth materially slowed down in the old continent with only 0.2% in Q3. There are some reports that suggest the European Central Bank will provide additional loans to banks via a new TLTRO program. The bond-buying scheme is set to conclude by year-end.
The European Union publishes updated growth forecasts later in the day.
Italy is preparing its response to the European Commission’s rejection of its budget. An answer is due by November 13th. In the meantime, Italy’s coalition parties, the 5-Star Movement and the League are embroiled in a clash over migration policies. Political analysts see a potential for a collapse of the government and early elections in the euro zone’s third-largest economy.
