US FX WRAP: Dollar ekes out gains as BRL slammed post election

DXY saw slight strength on Monday, although currency-specific newsflow was light as participants await the week's scheduled risk events, of which there are many; highlights include the FOMC, BoJ and ECB meetings, the UK Budget, US PCE and three Mag-7 earnings reports. As for Monday, there was no US data or Fed speak, so focus was on geopolitics and AI sentiment. ING writes that the balance of risks suggests the dollar can probably hold onto its gains, and that, barring some clearly underwhelming Q3 results from the likes of Alphabet and Microsoft, higher energy prices and a hawkish Fed can keep the dollar supported this week.

G10 FX saw losses to varying degrees, with the Yen the G10 underperformer, while the global FX laggard was the Brazilian Real, which plummeted following Lula's unexpected victory for a fourth term as President. Given this, there was broad-based selling in Brazilian assets, which saw USD/BRL rise to a high of c. 5.60 from c. 5.00. Following the result, MS sees USD/BRL holding above 5.60, potentially reaching 6.00 if fiscal concerns worsen, alongside 300-400bps of pressure on interbank rates.

The EUR initially fared well after France was spared a downgrade by Moody's on Friday, while on the data front, the German Ifo survey was mixed. However, the single currency faded, with EUR/USD trading between 1.1173 and 1.1227.