Democrats took both chambers of Congress by a wider margin than polls suggested, a result expected to matter little for markets, but for a day it did: stocks rallied Wednesday and the dollar slipped. The relief didn’t last. Investors turned to what a Democratic Congress means for the AI build-out, and Thursday brought a rout in chip and AI-linked stocks that gave the S&P 500 its worst day since April 2025 and pushed the Nasdaq into correction territory. The selling spread to Asian and emerging-market equities on Friday. The Swiss franc and the US dollar were the strongest major currencies of the week, with investors seeking safe havens from the equity rout. The dollar rally was also helped on Friday by a US jobs report that was much stronger than expected. Emerging-market currencies came under pressure amid the general repricing of risk in markets.
The week ahead has no Fed, ECB or BoE decisions, so inflation data and speeches take over. US CPI on Tuesday is by far the main event, a critical test for our one-more-hike-and-done call for the Federal Reserve, with ten Fed officials also scheduled to speak following last week’s jobs report. BoE Governor Bailey speaks Monday, UK Q3 GDP is due Thursday, and US PPI and the euro area’s flash Q3 GDP land Friday. US bond markets are closed Wednesday for Veterans Day while equities stay open, so liquidity could be thin.
GBP
The Bank of England raised bank rate a quarter point to 4%, by an 8-1 vote, with Catherine Mann the only dissenter pushing for a half-point. It said more may come, with inflation expected to approach 5% by mid-2027 driven by energy costs. Sterling jumped on the decision, but the gains faded within hours as haven buying favoured the franc.
The committee sounded less united on how far to go than the vote suggests, and we suspect the three further hikes priced in by markets are more than the MPC will actually deliver. Bailey’s speech Monday and Thursday’s GDP release are the next chances to test that.
EUR
The euro rose on the dollar’s post-election dip but gave those gains back on Friday as risk aversion and the payrolls report lifted the dollar. French fiscal worries remain the main drag, and large street protests in France Thursday were a reminder that the budget fight is far from over.
Last week’s inflation figures contained no surprises, but the 4% headline number, double the ECB’s target, maintains the pressure on the central bank to hike at least once more in December. Friday’s flash GDP and speeches from ECB officials Cipollone and Schnabel are the main events to watch. The euro is likely to trade as a risk-sentiment currency while equities remain unsettled.
USD
The dollar’s first reaction to the election was to weaken, as a Democratic Congress made further tax cuts or stimulus unlikely and Treasuries rallied. The AI rout then flipped it into a safe haven, though falling yields blunted the dollar’s appeal until Friday, when payrolls pushed December hike odds to roughly 80% and two-year yields higher.
We still see December as the last hike, and the market’s pricing of one more beyond that looks excessive. Whether the dollar holds its gains depends on equities steadying. If they do, a Congress unlikely to add fiscal stimulus over Trump’s veto argues against much further dollar upside. Tuesday’s CPI is the first test of our one-and-done view, since a hot core print would make it hard to defend.
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