What happened
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.
Why it moves currencies
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.
Where it shows up
What to watch
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.
Filed in the Library as a Wire lesson →Four more things that moved
BOJ September minutes back faster rate hikes
Minutes from the Bank of Japan's September meeting showed board members debating faster-paced increases after the board raised borrowing costs to a 31-year high of 1.25%. Markets now widely expect the BOJ's next hike in December, reinforcing the yen's overnight bid.
Brent crude crashes 9% as Iran risk fades
Brent fell 8.78% to $94.5 a barrel overnight, its sharpest single-session decline in months, as a Democratic Congress reduced expectations of further US-Iran conflict escalation. The Norwegian krone, the top G10 beneficiary of elevated oil prices during the conflict, came under sharp selling pressure.
PBOC sets weaker yuan fix for third straight day
China's central bank set a weaker-than-expected daily reference rate for a third consecutive session and raised the foreign-currency deposit reserve ratio, signaling a preference to slow yuan appreciation. Offshore USD/CNH edged up 0.1% to 6.6682, diverging from the broad G10 pattern of dollar weakness.
NZD leads G10 gains as New Zealand votes
The New Zealand dollar rose 0.41% to $0.5651, the strongest G10 performer against the dollar overnight, lifted by improved risk appetite. New Zealand held a general election on Thursday, adding a layer of domestic uncertainty that could generate NZD volatility as results emerge.
What's scheduled, in UTC
- 01Euro set for fourth straight daily rise as energy prices fall · Reutersreuters.com
- 02US dollar falls to five-week low after Democrats' election victory, sterling and yen strengthen · Profit by Pakistan Today (Reuters wire)profit.pakistantoday.com.pk
- 03BOJ debated need for more rate hikes, scope for faster moves, September minutes show · Reutersreuters.com
- 04Interest rates expected to rise for first time in over three years · BBC Newsbbc.co.uk
- 05Asia Open: Nikkei Slips 0.98% as Brent Sinks Below $95 After Wall Street Surge · JournalArtajournalarta.com
- 06Trump Reaction to Midterms: Veto Remarks, Market Moves · Admiralsadmiralmarkets.com
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