Dollar weakens after midterm elections, pound at seven-week high

The dollar continued to weaken on Thursday, November 5. In the US midterm elections, the Democrats won a majority in both chambers. Following the results, oil swung from rising to falling, and investors began showing more interest in risky assets. US government bonds and global equity markets also benefited. However, questions remain in the market over how the new Congress will treat the technology and artificial intelligence sector.

According to Rodrigo Catril, senior currency strategist at National Australia Bank, markets expect that Donald Trump will have difficulty advancing a hardline agenda, such as the US-Israel war and tariff policy, going forward. At the same time, he does not rule out that the reaction to the election results may have been overdone. The strategist considers lower oil prices a positive factor for risk appetite and for lower yields.

The dollar index slipped to 101.22. The euro rose to $1.1263, while the yen strengthened to 157.84 per dollar. The minutes of the Bank of Japan’s September meeting supported the yen. At that meeting, the policy rate was raised to 1.25%, a 31-year high. Some board members indicated the possibility of faster tightening. The market expects the next hike in December.

The pound rose to $1.349 ahead of the Bank of England’s decision, its highest level since September 14. The central bank is expected to raise rates in response to inflationary pressure caused by higher energy prices. However, investor expectations for additional hikes next year may change after the decision.

Expectations for US Federal Reserve interest rate policy remain unchanged. According to CME FedWatch, the probability of a rate hike of at least 25 basis points in December stands at 80.7% (77.4% in the previous session). The next key indicators are initial jobless claims, to be released on Thursday, and the nonfarm payrolls report, to be released on Friday. ADP’s October report showed more private-sector job creation than expected. Brian Martin, head of G3 economics at ANZ, believes the midterm elections will not significantly change the Fed’s tightening trajectory.

Other currencies: the Australian dollar rose to $0.7011 and the New Zealand dollar to $0.5648. Bitcoin rose to $80,400.79 and Ether to $2,421.52.