Dollar slides to one-month low as Democrats lead midterms

The US dollar index slipped to a one-month low in early Asian trading on Wednesday, Nov. 4, as the first results from the US midterm elections pointed to Democratic gains. According to The Wall Street Journal News Corp ↘ 1.23%, the index fell about 0.6% as Democrats took an early lead and many prediction markets showed Democratic control of both the House and Senate as the most likely outcome.wsj.com

Currency traders were betting that a Democratic Congress would bring fiscal gridlock and restrain government spending for the last two years of President Donald Trump's term. That outlook pulled Treasury yields lower along with the dollar.

Ossoff win sets the tone

Democratic Senator Jon Ossoff won reelection in Georgia, the first major race to be called, Reuters Thomson Reuters Corporation ↘ 9.87% reported, though a final answer on control of Congress was still likely hours away. Ossoff beat Trump-backed Republican Mike Collins in a state Democrats need to hold if they hope to retake the Senate.fxstreet.com+1

The dollar lost ground against most major currencies. The euro firmed against the greenback (EUR/USD) and the yen strengthened (USD/JPY). Yields fell across the Treasury curve, with both the 2-year and benchmark 10-year notes moving lower. The move partly reversed Election Day trading, when rising yields and solid economic data had lifted the dollar.reuters.com+2

Strategists eye a blue wave

"Early headlines and prediction markets are suggesting a rising probability of a blue wave," said Andrew Ticehurst, a senior rates strategist at Nomura Holdings in Sydney, adding that this scenario is "generally regarded as being negative for the dollar and positive for US Treasuries".fxstreet.com

Lin Li of MUFG wrote that a Democratic sweep could lower expectations for more US fiscal expansion, which would weigh on yields and the dollar. Li added that any gain for Asian currencies could be limited because tariff and trade policy remain largely under executive control. Analysts at ANZ also expect Democrats to win both chambers, which they said would constrain the Trump administration's agenda.wsj.com

Carol Kong, a currency strategist at Commonwealth Bank of Australia, said the dollar "could sell off further from here" if Democrats sweep. She pointed to one risk to that view. Trump has said he could restart a bombing campaign in Iran after the election, and further escalation could send oil prices "sharply higher, and that will support the US dollar," Kong said.reuters.com