By Li Gu and Ankur Banerjee
SHANGHAI/SINGAPORE, Nov 4 (Reuters) – The US dollar tumbled to a one-month low on Wednesday as the Democrats’ capture of Congress in midterm elections spurred fears of tougher regulation of the AI sector, which could weigh on US economic growth.
The dollar was under pressure from sliding Treasury yields as investors sought the safety of bonds while weighing the implications of gridlock in Washington. Traders also reined in rate hike wagers for next year.
The euro gained 0.6% to $1.1258, while the dollar index, which measures the greenback against a basket of six currencies, fell 0.6% to a one-month low of 101.27. The 10-year Treasury yield dropped nearly 5 basis points to 4.915%.
The dollar’s decline was particularly pronounced against the yen and the Swiss franc — both safe-haven currencies. Against the Swiss franc, the dollar weakened 0.6% to 0.8159, while the yen jumped nearly 0.8% to 157.92 per US dollar.
Democrats captured majorities in both the Senate and House on Tuesday, scoring sweeping victories that reached deep into Republican strongholds such as Kansas and Texas as tens of millions of voters delivered a scathing rebuke to President Donald Trump.
They have thus far flipped six Republican Senate seats, ensuring a majority even if they don’t manage to hold their own seats in competitive Michigan and Minnesota.
But for some, the bigger story for the dollar lies in what a Democratic win could mean for the AI sector.
“The price action is consistent with concerns about greater scrutiny on AI in the event of a Democratic sweep, and that is reflected in the underperformance of the Nasdaq and worries about US growth should AI face greater regulation,” said Moh Siong Sim, currency strategist at OCBC.
But Sim also noted: “Even in the event of a Democratic sweep, it is still difficult to pass legislation at the federal level, given the high hurdle under President Trump,” who holds veto power.
FOCUS TO SHIFT BACK TO FUNDAMENTALS
Investor focus will shift back to the fundamental and economic drivers of the US dollar once the midterm elections are over, said Carol Kong, currency strategist at Commonwealth Bank of Australia.
Kong said that US economic data will continue to paint a picture of a strong US economy, and that will in turn support further rate hikes and therefore the US dollar.
Kong said she is also watching the risk of an escalation in the Middle East depending on the election outcome, as Trump has declined to rule out a resumption of US combat operations after the elections in the United States.
“If he does ramp up the aggression in the conflict, then we could see oil prices jump sharply higher, and that will support the US dollar too.”
Oil prices edged down to $102.9 a barrel after easing about 1% on Tuesday to their lowest level in nearly four weeks.
Sterling rose 0.3% to $1.3458, with traders eyeing the Bank of England’s policy announcement on Thursday. The central bank’s Monetary Policy Committee is expected to raise interest rates for the first time since August 2023.
China’s offshore yuan fell 0.2%, last trading at 6.6836 per dollar. It extended declines after suffering its biggest one-day drop since May 15 on Tuesday, when the People’s Bank of China raised the amount of foreign currency that financial institutions must hold in reserve in a move to slow the yuan’s rally.
(Reporting by Li Gu in Shanghai and Ankur Banerjee in Singapore; Editing by Kevin Buckland and Edwina Gibbs)
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