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Dollar Dives as Democrats Take Congress
5 Nov
Summary
- US dollar reached multi-week lows following a Democratic congressional sweep.
- Risk appetite increased, triggering a rally in sovereign bond markets.
- Federal Reserve rate hike probability remains high at 80.7% for December.
The U.S. dollar fell to multi-week lows on Thursday, as a Democratic sweep of Congress enhanced market risk appetite and spurred a rally in sovereign bonds. The U.S. Dollar Index declined by 0.3% to 101.26, retreating from recent peaks. This retreat stemmed from the removal of election uncertainty and aggressive Treasury buying, which reduced the dollar's yield advantage.
A unified Democratic legislature is anticipated to implement strict trade policy oversight, potentially diminishing the threat of tariff escalations that previously drove capital to U.S. assets. Concurrently, concerns have emerged regarding the regulatory future of the artificial intelligence sector, a key driver of dollar strength.
Despite the political shifts, the dollar maintained a resilient floor due to persistent Federal Reserve rate hike expectations. Interest-rate futures indicated an 80.7% chance of a December rate increase, supported by robust private payroll data showing 86,000 jobs added in October. This reinforced the likelihood of ongoing wage pressures.
Meanwhile, the British pound paused its six-session winning streak at mid-September highs, anticipating a Bank of England rate increase. The euro held flat after four days of gains, with traders hesitant due to strikes in France and cooling business surveys. The Japanese yen strengthened against the dollar following hawkish minutes from the Bank of Japan.
