The EUR/USD is trading in the lower half of the 1.1300s. The US Mid-Term Elections are in the rearview mirror, and monetary policy divergence retains to dominate the movements of the world’s most popular currency pair.
The Federal Reserve left the interest rate unchanged and made minimal changes to the statement. The only notable modification related to business investment: it is now described as “moderating,” a downgrade from the September meeting. Nevertheless, the greenback gained ground in the aftermath.
Why? Perhaps markets had expected a more dovish statement after the elections are a thing of the past. A better explanation is that the Fed continues raising interest rates at a gradual but determined manner, while other central banks are moving very slowly and cautiously toward the exits. GDP data in the euro-zone has been quite disappointing while US growth remains robust, at least in the topline figure.
This Dollar domination will not last forever as the US economy has its issues. While the Fed acknowledged weak business investment, it is only one of three worrying signs for the US economy.
However, the American currency continues enjoying the monetary policy divergence.
Italy and the European Commission remain in loggerheads around the Italian budget. The third-largest economy in the euro-zone is set to respond to the rejection of the budget on November 13th, and it is unlikely to budge. An Italian lawmaker described the Brussels’ calculations as “made up numbers,” a statement that will not alleviate tensions.
Brexit headlines are split between hopes to finalize a deal in the next few days and significant disagreements that are hard to bridge. When the Pound experiences a considerable reaction to such headlines, the Euro also sees some volatility.
