As the global currency markets continue to shift and fluctuate, the spotlight remains on the US dollar (USD), which has demonstrated remarkable resilience against its G10 peers. Shahab Jalinoos, head of UBS FX Strategy, offers a deep dive into what’s driving these movements, particularly as we edge closer to key political and economic events in the US, Japan, the UK, and Canada. Here’s a breakdown of the latest factors influencing the foreign exchange landscape.

USD and Gold: An Ongoing Power Struggle

Despite the USD’s robust performance against major global currencies, it’s still being outshone by gold, the traditional safe-haven asset. This dynamic suggests that while the dollar may be strong, the market’s search for stability is still leading investors toward gold. The ongoing US political environment, specifically the upcoming November 5 elections, is poised to play a pivotal role in shaping this trend further.

The Trump Effect: What a Red Sweep Could Mean for the USD

One of the biggest potential game-changers on the horizon is the US election. If we see a second Trump presidency alongside a Republican-controlled Congress (the so-called “Red Sweep”), Jalinoos notes that we can expect a surge in US interest rates. This would likely occur due to looser fiscal policies and the reintroduction of widespread tariffs. Higher rates would, in turn, strengthen the USD further, as investors seek the higher yields offered by US assets.

Japan: Political Uncertainty and the USDJPY

On the other side of the Pacific, Japan faces its own political turbulence. Prime Minister Ishiba is grappling with poor election outcomes, which could lead to a more cautious stance on policy. This uncertainty has implications for the USDJPY currency pair, as a less aggressive policy could limit the yen’s strength against the USD.

The UK: Fiscal Strategy and the EURGBP

Across the Atlantic, the UK is gearing up for its next budget announcement, with Chancellor Reeves at the helm. The budget’s focus, particularly on capital spending, could significantly influence the EURGBP pair. If the UK government opts for a more expansive fiscal strategy, we could see a weaker pound relative to the euro. On the other hand, a more conservative approach may bolster the pound’s standing.

Canada: Rate Cuts and a Struggling CAD

Meanwhile, in Canada, the Bank of Canada (BoC) is expected to cut interest rates by 50 basis points. This anticipated move would keep the Canadian dollar (CAD) under pressure, as lower rates typically reduce the appeal of holding CAD-denominated assets.

Norges Bank: Minimal Impact on FX Reserves Sales

Lastly, in Norway, the FX team at UBS does not foresee significant market disruptions from the Norges Bank’s FX reserve sales. This suggests that while currency interventions can sometimes rattle markets, the current scale and context of Norges Bank’s actions are unlikely to make big waves.

Navigating the Shifting Landscape

As we approach key global events, ranging from elections to fiscal policy decisions, the FX landscape is set for further shifts. While the USD remains a dominant force, other factors—such as gold’s allure and global political uncertainties—could reshape currency dynamics in the months to come. Keep a close eye on these developments, as they will undoubtedly create opportunities and risks for investors navigating the forex market.

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This analysis provides an insightful glimpse into the forces driving currency movements, and the potential impacts of political and economic decisions across major economies. As always, it’s crucial to stay informed and adaptable as market conditions evolve.