Dollar weakens as Democrats take the House from Trump

Nov 7, 2018

The USD has weakened today as US mid-term election results show that the Democrats will retake the House of Representatives from Trump’s Republican Party.

The Republicans have held the Senate but this split in Congress will limit Trump’s ability to push forward his domestic agenda┬á as many policies are unlikely to be approved by the Democratic House. This reduces the odds of any major boosts in fiscal policy and also increases political uncertainty.

Some market participants are concerned that these results will make Trump focus more heavily on his external policies, where he keeps control, which could lead to an escalation in US-China trade tensions.

In other news, the Pound is still benefiting from increased optimism over Brexit. Yesterday’s Brexit Cabinet meeting seemed to go better than many had expected and a thumbs up from Brexit Secretary Raab as he left the meeting led to a spike in the Pound.

There’s still a long way to go and some of the major issues are still unresolved. The Irish border continues to be the biggest hurdle. Yesterday, a senior member of the DUP said that it looked like Britain would leave without a deal because of this issue. That said, yesterday’s cabinet meeting appeared to show a bit more unity within the government and a determination to get a deal done.

As a result, the GBP/USD has moved 1% higher and trades at a 3-week high. The GBP/EUR remains buoyant and trading around 5-mth high.