A major victory for the Democratic Party in the U.S. midterm elections weighed on the dollar on Wednesday (Nov 4). Investors are closely monitoring the potential for stricter AI regulations and their impact on U.S. economic growth. The Democrats secured control of both the Senate and the House, including winning several districts that had previously been strongholds for the Republican Party.
Pressure on the dollar also stems from market concerns that tighter AI regulations could hinder investment in data centers and AI-related spending—key drivers of recent U.S. economic growth. An economic slowdown could reduce the need for interest rate hikes, thereby diminishing the dollar's appeal.
The U.S. Dollar Index (DXY) fell to a one-month low, hovering around 101.39. The euro strengthened by 0.53% to US$1.1251, the British pound rose 0.55% to US$1.3485, and the dollar weakened by 0.44% against the Swiss franc to 0.8169. The yield on the 10-year U.S. Treasury note also declined by 1.7 basis points to 4.933%.
Nevertheless, the Democratic victory does not necessarily guarantee a prolonged weakening of the dollar. The federal legislative process still faces hurdles, as President Trump retains veto power. Furthermore, the market is beginning to shift its focus back to economic fundamentals—specifically economic data and the trajectory of Treasury yields.
Geopolitical factors also remain a risk for the dollar. Should the U.S.-Iran conflict escalate, oil prices could surge, potentially fueling inflationary pressure. Such a scenario might actually support the dollar, as the market could once again anticipate a tighter U.S. monetary policy. Meanwhile, oil prices fell by approximately 1.3% to US$102.30 per barrel.
Newsmaker Analysis: The Democratic victory serves as a short-term source of pressure on the dollar, driven by the potential for slower economic growth and declining yields. However, the next direction will once again be determined by US economic data, expectations regarding the Federal Reserve, developments in AI, and the US-Iran conflict. If yields continue to decline and economic data weakens, the pressure on the DXY could potentially persist. (arl)
Source: Newsmaker.id