A large portion of the election move in the US Dollar (USD) has been unwound. That looks more like a positioning adjustment rather than a rethink of what a Trump presidency means for global markets. Remember that markets got to Election Day broadly pricing in a Trump victory, and while the USD spiked in reaction to the Republican clean sweep, there are perhaps some questions now on how far the USD can rally near term given the focus is shifting back to the macroeconomic discussion, ING’s FX analyst Francesco Pesole notes.

USD remains in a strong position

“The Fed cut rates by 25bp yesterday, in line with market expectations and consensus. The FX market was very marginally impacted and so was the rates market. If anything, we saw a very brief firming in the USD and a small rise in yields when Chair Jerome Powell seemed to suggest a more upbeat outlook for the US economy. Ultimately, markets were seeking any indication that Powell might tweak the narrative on the back of the US election, but there was understandably no indication of that.”

“The USD remains in a strong position from a rate perspective. The two-year USD swap rate is near the 4% handle, and we probably need to see some worsening in US data sentiment for markets to take that back lower.”