The greenback gained modestly overnight, buoyed by the impressive US PPI data. Today USD is trading under a mild pressure against most of its counterparts ahead of FOMC decision which is widely expected to bring a 25 bp rate hike.
But the market focus suddenly shifted to the political arena where the Thump Republicans faced another hurdle. Specifically, the Democrat candidate Doug Jones won a victory in the Alabama Senate race. It was a great surprise and disappointment for Trump who relied on Moore, as his vote, according to the president’s own calculations, Republicans needed for the tax bill.
After the certification of Jones’ victory which may take place immediately after the Christmas, the Republicans’ Senate majority will shrink to 51-49. These developments entail risks for the tax plan, as well as for the whole Trump’s economic agenda in the longer term. Though Moore’s defeat hasn’t pressured the greenback much so far, the consequences may yet add to the list of the USD long-term issues.
As for the upcoming Fed monetary policy decision, there is very little chance that Yellen will be “hawkish” during her final scheduled press conference. The cautious Fed tone will be a bearish sign for the USD which may suffer losses across the board.
In such circumstances, the EUR/USD pair, struggling to attract follow through buying interest this month, may easily regain the 1.18 area. It will alleviate immediate downside pressure and introduce scope for the intermediate resistance at 1.1855.
By Helen Rush
Senior Analyst at Capital Markets