The dollar extended its decline on Thursday after Democrats won majorities in the US Senate and House. Oil prices fell sharply and risk sentiment improved, but markets still price in a Fed rate increase in December.
The dollar extended its decline on Thursday after Democrats swept to majorities in the Senate and House of Representatives. The result sent oil prices sharply lower and buoyed risk sentiment, according to Reuters.
The dollar index fell 0.25% to 101.22, after a 0.34% slide on Wednesday. Investing.com separately put the index at 101.26, down 0.3%.
Oil drop drives the market reaction
National Australia Bank senior currency strategist Rodrigo Catril said the sharp drop in oil reflected expectations that President Donald Trump will now be unable to conduct an aggressive agenda, including the US-Israeli war on Iran or trade tariffs. Catril also cautioned that currency moves may reflect positioning and perhaps overreaction rather than a medium-term dynamic.
The euro climbed 0.32% to $1.1263. The New Zealand dollar surged 0.5% to $0.5648, and the Australian dollar strengthened 0.11% to $0.7011.
Yen and sterling gain on central bank bets
The yen strengthened 0.35% to 157.84 per dollar after minutes from the Bank of Japan's September meeting reinforced bets for further rate hikes. At that meeting, policymakers raised rates to a 31-year high of 1.25%. Markets now widely expect the next hike in December.
Sterling strengthened 0.14% to $1.349, poised for its highest close since September 14. The Bank of England is expected to raise rates on Thursday to contend with inflation pressure from soaring energy costs, though it may push back against bets that several more increases will follow next year.
Fed expectations stay firm
Despite the political shift, markets are pricing in an 80.7% chance of a rate increase of at least 25 basis points from the Fed in December, according to CME FedWatch. That is up from 77.4% in the prior session.
Labour market data comes next. Initial jobless claims land on Thursday and non-farm payrolls on Friday. The ADP report on Wednesday showed private payrolls rose by more than expected in October.
Sources: Reuters via Investing.com, Investing.com
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