Dollar slips ahead of US midterm election results

what happened

Reuters reports that the dollar declined against most leading currencies on Wednesday as investors positioned for midterm vote outcomes that could give Democrats a strong showing. The first race called was the Senate contest in Georgia, where incumbent Jon Ossoff was re-elected. Whether Democrats can take control of Congress from Donald Trump's Republicans remained unresolved, with a final answer still hours away.

The euro rose 0.2% to $1.1212 and the yen strengthened to 158.30 per dollar. The dollar index eased 0.2% to 101.7. The 10-year US Treasury yield dropped 4 basis points to 4.919%. Sterling gained to $1.3440 ahead of the Bank of England's Thursday decision, where a first rate hike since August 2023 is expected. The offshore yuan traded at 6.6673 per dollar, steadying after its sharpest one-day fall since May 15, which followed a People's Bank of China move to raise reserve requirements on foreign currency held by financial institutions.

why it matters

The main question for markets is what follows the vote. Carol Kong, currency strategist at Commonwealth Bank of Australia, argued that a Democratic sweep could push the dollar lower still, since it would restrain government spending during Trump's term. She also flagged Middle East risk: if Trump resumes bombing Iran, oil could jump, which she said would support the dollar.

market impact

Dollar and FX pairs: midterm uncertainty and Middle East risk shape the direction of the greenback

• ▼US dollar pressure down — a Democratic sweep would limit government spending, weighing on the currency
• ↔Brent mixed — a renewed Iran bombing campaign would lift prices, while peace talks would weigh on them

tags

instruments