Markets rallied ahead of the US Mid-Term elections in the USA tonight. Polls point to a Republican sweep, which would give the US split Government, with the Democratic Executive and Republican Congress. This would almost certainly lead to a change in policy direction and a severe tightening of the fiscal floodgates. This fiscal largesse, funded by monetary expansionism is at the heart of the inflation crises, so must be seen as a positive. Strange things happen at US elections so markets will hold their collective breath. The US Dollar drifted, with the EUR regaining parity to trade 1.0015, while the GBP hit 1.1480.
Commodity currencies enjoyed the softer reserve, with the AUD trading above 0.6450, while the NZD holds 0.5900. Chinese trade data was softer than expected, as markets keenly await a full reopening from the pandemic, while attention will focus on US inflation following the election. US inflation is expected to soften back to 8%, or below, mounting further pressure on a determined Fed to pause/pivot. A hot number would only ensure the Fed’s hawkish war on inflation continues unabated.