There will be central bank policy meetings in two key G7 economies today: the USA and the UK. Both banks are expected to cut rates by 0.25%.

1. The US Federal Reserve and the Bank of England will be holding policy meetings today. Both central banks are expected to cut their interest rates by 0.25%. Any different course of action would be a major surprise. What will be closely watched are the policy statements and economic forecasts, as well as the voting on the rate cuts. The Fed will be especially closely scrutinised following Trump’s win in the Presidential election and the Republican sweep of both Houses of Congress, which looks almost certain to happen. Trump’s policies are seen as likely to create an environment where the Fed would have room for the pace of rate cuts expected otherwise, so changes to the “dot plot” will be in focus.
2. Markets have continued reacting to the unexpectedly strong Republican clean sweep of the executive and legislature in the US general election last Tuesday, pricing in the effect of Trump and Congressional Republican’s likely policies. As Trump wishes to stimulate the economy, higher stock prices are expected, and this has pushed all the major US equity indices such as the S&P 500, the NASDAQ 100, and the Dow Jones Industrial Average (technically not an index) to new record highs. Trump’s policies are seen as likely to stoke inflationary pressures, which raises the rate curve and makes Fed rate cuts less likely, pushing up the US Dollar (although there are initial signs this move in the greenback may have run out of momentum). Finally, Trump and the Republicans are seen as the more friendly side towards cryptocurrency, which helped Bitcoin reach a new all-time high above $75k yesterday.
3. The Trump trade is mostly seen as follows:

1. Long US stock market indices such as the S&P 500, or the NASDAQ 100.
2. Long of the US Dollar (maybe USD/JPY as the Yen is relatively weak). This is the weakest and most uncertain part of the Trump trade,
3. Long of Bitcoin.
4. Long of US Treasury Yields (the CME index offers very affordable micro futures).

In the Forex market, the New Zealand Dollar has been the strongest major currency since today’s Tokyo open, while the US Dollar has been the weakest, putting the NZD/USD currency pair in focus. The US Dollar traded yesterday at multi-month highs against all the major currencies except the Swiss Franc, the British Pound, and the Canadian Dollar.

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