Dollar falls after Democrats take US Congress in midterm elections

The US dollar fell on Wednesday, November 4, after Democrats won control of both the Senate and the House of Representatives in Tuesday's midterm elections. Reuters reported that the currency was on pace for its biggest daily percentage decline in three weeks. It said the result removed a source of uncertainty for markets while investors assessed possible regulatory changes.

According to Reuters, the outcome also locks in a divided government, with a Republican president and a Democratic-controlled Congress. Reuters said the elections removed concerns about contested results. A strategist quoted in the report described the market mood as a mix of selling the news and relief that a prolonged dispute over the vote count would not materialise. The same strategist said a broad risk-on mood tends to weigh on the dollar.

The dollar index, which measures the greenback against a basket of currencies, fell 0.32% to 101.51 in the Reuters report. That put it on track for its largest drop since October 15. The euro rose 0.38% to $1.1236 and reached its highest level since October 6 during the session. Sterling gained 0.43% to $1.346, after touching a more than seven-week high of $1.3503. Its move came ahead of the Bank of England's policy announcement on Thursday. Against the Japanese yen, the dollar was 0.03% lower at 158.6.

Other outlets reported a similar picture. Anadolu Agency said the dollar index fell below 101.5, its lowest level in five weeks. It linked the move to expectations of legislative gridlock that could limit President Donald Trump's ability to advance his economic agenda and curb federal spending. It also said a full Democratic victory could open the way to stricter regulation of artificial intelligence and tighter corporate oversight, which might dampen growth expectations. The Guardian, in a piece carried by AOL, reported that the dollar was also under pressure from falling bond yields as investors moved into US Treasuries. It said AI-related shares fell in Asian trading on expectations of tougher regulation of the sector.

Reuters noted that US stocks rallied in the early stages of trading, while crude prices dropped. Investors were waiting to see Washington's next move in the US-Israeli war with Iran after the election results. Anadolu added that diplomatic talks between Washington and Tehran remained stalled, and that investors were watching the possibility of renewed US military action.

The Reuters report also covered fresh US data. The Institute for Supply Management said its non-manufacturing PMI eased to 54.5 in October from 54.9 in September. That was slightly below the 54.8 estimate but still above the 50 level that separates expansion from contraction.

Gold also reacted to the weaker dollar. A separate Reuters report said spot gold rose 3% to $4,046.91 per ounce by 0928 GMT, and US December gold futures also rose 3%. It said the post-election slide in the dollar lifted demand for bullion. A weaker dollar makes dollar-priced gold cheaper for holders of other currencies, which can support demand. A market participant quoted in that report also pointed to investor worries about the fiscal outlook. Investors were awaiting this week's US payrolls data for signals on the Federal Reserve's rate outlook.

Market moves like these reflect how investors read the political outcome at a given moment. They do not indicate where any currency or commodity will trade next. The coming Bank of England decision and the US jobs figures are among the events currency traders were watching after the election.

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