The US dollar witnessed an increase in value against other major currencies on Wednesday as the results of the US Midterm elections did not come out as it was expected by the market. Investors and market analysts were expecting a strong victory for the Republican Party which did not happen when the results came out.
It is reported that investors and traders are now going to focus on the upcoming data on inflation and other macroeconomic readings.
Wall Street was expecting a major victory for Republican Party as Democratic Party has not been able to perform well in areas such as the economy and foreign policy. The reaction of Joe Biden’s government towards high inflation in the economy and half-baked policies followed by the federal government in handling the Russia – Ukraine crisis was expected to turn the voters in favor of the Republican Party. Even though the Republican Party was able to achieve modest gains in the midterm elections, the performance of the Democratic Party was much above expectations.
According to Joe Manimbo, a senior market analyst at Convera, a Republican Party victory would have meant less financial support and potentially a lower peak in the terminal rates of the US Federal Reserve. This would have been against the global trend which will ultimately result in US Dollar going down in value.
According to Manimbo, investors and traders will now turn the page on politics and start focusing on the upcoming inflation report on Thursday. “The inflation report could be a good litmus test to gauge whether dollar sentiment has materially softened,” Manimbo said.
As the US Consumer Price Index data will be released on Thursday, the market will be able to analyze whether the monetary policy actions of the US Federal Reserve have had any impact. If the inflation rates are not coming down as expected, it will be a signal that US Fed would continue its aggressive interest rate hike even to the next calendar year.
A few days ago, while announcing its fourth consecutive interest rate hike, US Fed had signaled that it will look into future data and condition of the economy to decide when and how to slow down interest rate hikes.
The dollar has retreated from multi-decade highs in recent weeks as investors take profits following a months-long rally and as speculation grows that the Fed may be inching closer to pulling the curtain on its dollar-supporting interest rate hikes.
Japanese Yen went down by 0.34 percent against US Dollar while the dollar gained 0.3 percent against Euro to settle at $1.004.