Yesterday’s biggest American political event was the election of Mike Johnson, Republican of Louisiana, to serve as Speaker of the House for the 119th Congress. Mr. Johnson was able to avoid a long selection battle for the speakership with the only major challenge coming from U.S. Representative Hakeem Jeffries, Democrat of New York.
The next political event, which may be more pomp and circumstance, will be the certification of the Electoral College votes by the President of the Senate, Kamala D. Harris. The presumptive president-elect, Donald J. Trump, will be sworn in on 20 January 2025.
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Mr. Trump will be sworn in as head of state of an economy that is not firing on all productive cylinders. The strong dollar we are witnessing today is indicative of an American economy that is more resilient than its fellow Anglophone economies. The EUR/USD closed above 1.0275 as I had bet last Monday, closing around 1.03017.
While I got the energy right given a combination of currency pair price movement over the prior week and the differences in the European Central Bank short term rate and the effective federal funds rate, failing to consider the potential impact of the US Manufacturing PMI meant that mentally I was caught off guard by the EUR/USD movement in the opposite direction last Wednesday and Thursday.
My intuition told me that trader sentiment in the opposite direction may have just been a reaction to a weak PMI report and that the EUR/USD would continue its path above 1.0275.
While some analysts are expecting a little dollar weakening in the early months of the Trump administration, that may be tempered by a continued lower growth outlook in the Eurozone.
Just how successful will Mr. Trump’s deregulatory initiatives be in boosting the economy is the question.
Alton Drew
4 January 2025
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