Markets Driven by Politics, Geopolitics and Fed Speakers

The U.S. Dollar posted mixed results against several currencies, but the weighting of the U.S. Dollar Index allowed the futures contract to post a solid gain. The dollar lost ground against the Japanese Yen, but was able to post a stronger performance versus the Euro and New Zealand Dollar. Since the dollar index is weighted heavily by the Euro, the single-currency’s loss helped drive the U.S. Dollar Index higher on Monday.

December U.S. Dollar Index futures settled at 92.441, up 0.474 or +0.52%.

Limiting the dollar’s gains on Monday was flight to safety buying due to concerns over geopolitical risks.

Forex

Political uncertainty drove the New Zealand Dollar lower as the ruling National Party won the largest number of votes in a weekend election but failed to secure a ruling majority, with a protracted period of coalition building now a possibility. The decline in the NZD/USD was the currency’s biggest drop in about a month.

The Euro opened sharply lower and continued to weaken throughout the session. The single-currency is breaking hard in reaction to Germany’s election results which showed surging support for a far-right party that is going to force Chancellor Angela Merkel to form a governing coalition.

The EUR/USD closed at 1.1849, down 0.0098 or -0.82%.

Geopolitical Risk

Safe haven assets like the Japanese Yen and Gold dipped early in the session on Monday on concerns over a fractured parliament in Germany, but recovered after stocks and U.S. Treasury yields declined. Both fell after North Korea’s foreign minister Ri Yong Ho said U.S. President Donald Trump had declared war on North Korea. Ri added that North Korea has the right to shoot down strategic U.S. bombers even if they are not in North Korean airspace.

Economic News

Federal Reserve Bank of New York President William Dudley said the U.S. central bank should maintain its gradual pace of policy tightenings as temporary factors holding down price pressures fade. This signaled the Fed remains on track to raise interest rates again in December.

Chicago Fed President Charles Evans offered a more cautious perspective on Monday. Speaking in Grand Rapids, Michigan, Evans said that he was “broadly comfortable” with the median estimate of the Fed’s quarterly projections, which showed its overnight policy rate ending 2019 at 2.7 percent.

Evans also said, “We (the Fed) should avoid taking policy steps that could be misread as a lack of concern over the inflation outlook. In my view, that would be a policy misstep that would further delay achieving our inflation objective.”

Minneapolis Fed President Neel Kashkari said on Monday that he sees no need for the U.S. Federal Reserve to raise interest rates further as he sees no evidence recent weak inflation data is set to improve.

“When I look at the economy I don’t see any signs that the economy is close to overheating,” said Kashkari, a voter on the central bank’s rate-setting committee this year, during an appearance at the University of North Dakota. “I don’t see inflation taking off so I see no need to tap the brakes.”