Dollar slides as early US midterm counts point to Democratic gains
Early returns from the US midterm elections showed Democrats gaining ground in the Senate and House, and the US dollar fell sharply on the prospect of political gridlock in Washington.
The dollar index (DXY), which measures the currency against a basket of peers, dropped to its lowest level in over a month as the vote tallies came in. NBC News has projected Democratic control of both the House and the Senate, and Nomura strategist Andrew Ticehurst said a “blue wave” is generally regarded as negative for the dollar.
The dollar’s slide also coincided with falling US Treasury yields, as investors moved into government bonds. Separately, comments from President Donald Trump to the Financial Times that there were no immediate plans for military action against Iran added to the pressure on the greenback by easing geopolitical risk.
The combination of weaker safe-haven demand lifted other currencies against the dollar. The British pound climbed to its highest level since September 16, moving back above the 1.3400 handle, aided also by expectations the Bank of England could raise interest rates at its upcoming policy meeting.
This comes even as a separate US labour market report showed job openings rose more than expected to 7.5 million in September from 7.2 million previously, a figure that would normally support the case for continued Federal Reserve policy tightening.
Why it matters for markets: A weaker dollar driven by the election outcome affects currency pairs such as EUR/USD and GBP/USD, and tends to support US Treasuries as investors seek safety, while a shift in control of Congress can also feed into broader risk sentiment across equity indices.
Sources: Investing.com (economy); Investing.com (economy); FXStreet; FXStreet