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US Republican party takes back control of the Senate - BTMU

FXStreet (Łódź) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ comments on the results of the US midterm elections.

Key Quotes

"As was widely expected, the Republican party in the US took back control of the Senate for the first time under the presidency of Barack Obama consigning the final two years of his term in the White House from lame duck to very lame duck. The unpopularity of President Obama was highlighted by the loss of North Carolina, Colorado and Iowa – all important states that had helped him secure the White House in 2008."

"Illinois, Obama’s home state also voted in a Republican governor. The Senate seat count is now 52 for the Republicans with two states still to declare and full control of Congress will likely mean some bills, unpopular with the democrats, will be heading to the White House for a signature that obviously won’t be forthcoming. That suggests continued policy gridlock in Washington."

"For that reason (continued gridlock as before), there is likely to be limited reaction in the financial markets. As I highlighted in last week’s BTMU FX Weekly, the equity market tends to perform well in the three and six month periods following these elections and with the perceived more-market-friendly Republicans in control of Congress that might be the case again now. For the dollar there is no historical pattern post mid-term elections and there is no implications here either."

"Far more important for the dollar will be the incoming economic data, especially now that “considerable time” is formally now linked to the data flow. In that regard, the ADP employment report today will be important in shaping Fed policy expectations. Based on other labour market data, there is no reason not to think the data today will be strong and USD/JPY could get a further lift later this afternoon."

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