Global Perspectives: What Impact Might the U.S. Midterm Elections Have on Trade Negotiations?
Weekly commentary on international finance and economics including global events and how world issues affect our domestic issues.
What Impact Might the U.S. Midterm Elections Have on Trade Negotiations?
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With the U.S. midterm elections in the rearview mirror, we now know that the Democrats have retaken the House and the Republicans were able to hold onto their majority in the Senate — a result that was widely expected.
As the election results rolled in, the dollar sold off in reaction to a divided Congress, which is often seen as limiting policy actions. Specifically, the prospect of additional fiscal stimulus has faded. This has caused the markets to price from a headwind to a neutral factor. This has caused the yield curve to flatten as the Fed continues on its gradual rate path, raising the short end of the curve, but the long end drops as slower potential growth is priced in.
The results of the midterm elections also have implications internationally. The drop in U.S. yields have provided a reprieve to emerging market currencies, which have been battered by a divergence in fiscal policy. However, one of the exceptions to this has been the Mexican peso. Congress still has to approve the United States-Mexico-Canada Agreement and a Democratic-controlled House raises questions around this ratification process.
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