North American FX Open - USD rallies on Trump victory

The USD surged last night to the strongest level in a year as TRUMP looked set to clinch the US presidential race, triggering a sharp rise in Treasury yields on speculation his policies would keep US interest rates elevated.

Indeed, while Trump has advocated for a weaker dollar, investors believe his policies will stoke inflation and slow the pace of the Fed cuts, ultimately boosting the greenback. Trump, who is projected as the winner across pivotal swing states with his party set to control the Senate, has promised to cut taxes and slap large tariffs on imports - hurting the currencies of some of America’s biggest trading partners.

The Trump trade is thus winning out, and while some consolidation was witnessed during the European morning, further dollar strength seems likely if a red sweep is confirmed.

Markets are now pricing for a total of 91 bps of easing by June, down from around 150bps just over a month ago.

Focus is now on whether Republicans will end up with the "trifecta," meaning a situation where they gain control of the Senate, the House and the White House.

The EUR was the worst performer among the Group-of-10 currencies, on fears about trade tariffs hurting European growth. The YEN, GBP, AUD and Swiss franc were all sold heavily, while losses in the Mexican peso hit the 3% mark.

Deutsche Bank has recommended that clients position for a weaker euro against the dollar, and has moved its year-end forecast for the pair to 1.05 from 1.08. Mizuho say a Republican clean sweep could send the euro as low as 1.03 by December, lower than a previous forecast of 1.08.

Meanwhile, another German data relief emerged overnight, this time in the shape of factory orders which rose 4.2% m/m in Sept vs the 1.5% rise forecast. The EZ final composite PMI also came in better at 50.0 vs the 49.7 flash, with services up 51.6 vs the 51.2 flash.

EMU Sept PPI fell 0.6% m/m and 3.4% y/y as expected.

In NZ, the Q3 employment report disappointed, as expected. The employment change came in at -0.5% q/q, with the previous quarter revised softer too at 0.2% (0.4%) and the unemployment rate rose to 4.8% amid fresh recession worries.

Minutes from the BOJ September MPM revealed some officials were skeptical of the potential merits of releasing a rate path projection similar to the Fed's dot plot when authorities discussed the idea during their meeting.

And, the PBOC pledged to maintain an accommodative monetary policy stance and to double down on countercyclical adjustments to support Chinese economic growth.

On the geopolitical front, Bbg reports Israeli PM Netanyahu fired Defense Minister Gallant last night, sparking widespread protests by citizens and opposition politicians. Gallant is seen as having pushed for a hostage release in exchange for a ceasefire with Hamas while the PM wanted to press on with the war.

Ahead, US data is lacking, but ECB speak picks-up with Lagarde, Guindos and Villeroy all scheduled to orate.

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