USD holds bullish undertone - Scotiabank

The US Dollar (USD) is consolidating in quieter trade at the start of the week. Market participation feels a little lighter to start the week. After the surge in the USD following the US elections, investors may be taking a step back to assess prospects as the president-elect assembles his team and lays out policy priorities, Scotiabank's Chief FX Strategist Shaun Osborne notes.

USD little changed versus core majors

"Looking at the last two US presidential elections, the DXY rallied in 2016 in the initial response to Trump's victory and weakened in response to Biden's 2020 win. In both cases, the USD's immediate, post -election reaction started to weaken in mid/late December (after a 5.5% gain in 2016 and a 4.5% loss in 2020). So far, the USD's broader trajectory is closely tallying with the 2016 profile; a similar (roughly 5% swing) in the DXY in response to the 2024 outcome suggests initial risk for the index is for a rise to around 108.50 ahead of some late year consolidation perhaps."

"So far today, the core majors are soft but little changed on the day while the JPY is underperforming following comments from BoJ Governor Ueda. The governor commented that the timing of the central bank's next hike depended on the economy and price trends. This was his last major speech ahead of the BoJ's December 18-19th policy decision and his failure to flag the risk of more tightening clearly saw the JPY slip."

"Swaps continue to price in 13bps of tightening for next month, however. There's limited data for the markets to focus on today but there is a fair bit of central bank speak--from ECB President Lagarde, chief economist Lane and BoE's Greene to the Fed's Goolsbee (a nonvoter)."