Democrats secured majorities in both the Senate and House of Representatives in Tuesday's midterm elections. Markets interpreted the result as a check on President Trump's ability to escalate the US-Iran war and impose new trade tariffs. The dollar index touched 101.21 in the Asian session, its weakest since September 30, extending Wednesday's 0.34% decline. Ten-year Treasury yields fell 4.5 basis points to 4.847%. EUR/USD rose 0.29% to $1.1261, its fourth consecutive daily gain. GBP/USD advanced to $1.349 on a seventh straight session of gains. USD/JPY fell toward 157.95, with the yen aided also by hawkish Bank of Japan minutes released overnight. The New Zealand dollar led G10 gains, up 0.41%, while the Australian dollar edged up 0.16% to $0.7015.
The dollar is the world's primary safe-haven currency: when geopolitical risk falls, investors rotate into riskier assets and demand for the greenback eases. A Democratic Congress is seen as gridlocking the most aggressive parts of Trump's agenda, reducing two inflation risks specifically: wider trade tariffs and a broader Iran conflict. Both effects shrink the premium investors demand for holding dollars. Lower oil prices amplify the move. Cheaper energy reduces inflation expectations, lowering pressure on the Fed to tighten further and narrowing the rate differential that attracts capital into dollar assets. Deutsche Bank noted an unusual feature of this cycle: falling US tech stocks now weaken rather than strengthen the dollar, because America has grown unusually reliant on foreign equity inflows. When those flows reverse, the dollar falls even as equities elsewhere also slip.
Lower energy import costs and broad dollar selling extend the euro's four-day rally.
Yen benefits from dollar selling and hawkish BOJ minutes reinforcing December hike bets.
Sterling rides broad dollar weakness to a seventh consecutive daily gain.
Improved risk appetite and a weaker dollar lift the commodity-linked Australian dollar.
The Bank of England's decision at 12:00 UTC is the session's pivotal moment: a 25bp hike to 4.00% is widely expected, but Governor Bailey's forward guidance will determine whether sterling's rally extends or stalls. Any signal of hesitation about the pace of further increases could make the pound vulnerable, as Societe Generale's Kit Juckes cautioned overnight.