Dollar edges higher; midterm election results, inflation data in focus


By Peter Nurse – The U.S. dollar edged higher in early European trade Wednesday, stabilizing after overnight losses amid uncertainty from the U.S. midterm elections and ahead of key inflation data later this week.

At 02:50 ET (07:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher at 109.625, after losing around 1% so far this week.

The results from the U.S. midterm elections are still uncertain, with the Republicans seemingly heading towards taking control of the House of Representatives. However, the Senate race looks too close to call at this point with many of the most competitive races still undecided.

“A Republican victory in one of the U.S. chambers and consequent gridlock could pose a challenge to further fiscal stimulus, and also raise the prospect of clashes over government funding deadlines and the U.S. debt ceiling,” said analysts at HSBC, in a note.

“But these are issues for 2023. The more immediate angle for markets is whether any results from the election are actively disputed, a potential concern around whether the 2024 [Presidential] results will be accepted.”

Also looming on the horizon is Thursday’s crucial U.S. consumer inflation data, which is expected to show the annual CPI figure falling to 8.0% in October from 8.2% the prior month, while the core figure, which excludes volatile food and energy prices, is seen dropping to an annual 6.5%, from 6.6%.

The dollar has been under downward pressure of late from expectations that the Federal Reserve will ease back from its aggressive hiking cycle shortly, potentially as early as December.

However, an upside inflation surprise could likely change that thinking, helping boost the U.S. currency.

EUR/USD fell 0.1% to 1.0068, with the European Central Bank set to hold a non-policy setting meeting later in the session.

ECB policymakers have made it clear that further rate hikes are on the way, after the central bank lifted interest rates by 75 basis points late last month even as growth in the Eurozone suffers.

“I will … do my utmost to ensure that we, the Governing Council of the ECB, do not let up too early and that we continue to push ahead with monetary policy normalization – even if our measures dampen economic development,” Bundesbank president Joachim Nagel said on Tuesday.

GBP/USD edged lower to 1.1532, USD/JPY rose 0.1% to 145.75, with the yen having recently falling to its weakest level since 1992, as the Japanese authorities maintained their very accommodative monetary policy, while the risk-sensitive AUD/USD fell 0.1% to 0.6495.

USD/CNY edged higher to 7.2508, with China struggling to contain its worst COVID-19 outbreak since May.

USD/PLN rose 0.4% to 4.6692 ahead of Wednesday’s Polish central bank policy meeting, amid uncertainty over whether the country’s policymakers will restart rate increases after last month’s pause.

Economists surveyed by Bloomberg were split on the subject, with 17 of 32 forecasts predicting a hike of some size, while 15 say the rate will remain unchanged.

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