The dollar edged lower on Thursday following a decisive victory by Democrats in the US midterm elections, which alleviated a significant source of uncertainty and spurred a rally in global equities. The yen strengthened following the release of minutes from the Bank of Japan’s September meeting, which bolstered expectations for additional interest rate hikes. Meanwhile, sterling remained close to a seven-week high in anticipation of a Bank of England policy decision that is expected to result in another rate increase.
Democrats achieved significant majorities in both the Senate and House of Representatives, alleviating worries regarding disputed outcomes and driving increases in US Treasuries and global equities. The election result raises prospects of political gridlock in Washington and lowers expectations that US President Donald Trump will resume military strikes against Iran, according to Ray Attrill. “A lot of the market moves that we’re seeing, particularly in bonds, I think can be traced directly to that, as well as a weaker dollar on the back of lower Treasury yields,” Attrill said on a podcast. The dollar index, which measures the greenback against a basket of currencies, fell 0.06% to 101.41, following a 0.36% decline in the previous session.
The euro appreciated by 0.12%, reaching a value of $1.1241. The yen appreciated by 0.08%, reaching a value of 158.25 against the dollar. Despite the political shift in the US, expectations for the Federal Reserve’s interest rate path remained largely unchanged. Markets are currently reflecting an 81.2% probability of a rate increase of at least 25 basis points from the Fed at its December meeting, as indicated by CME FedWatch, an increase from the previous session’s 77.4%. The ADP National Employment Report indicated that US private payrolls increased by 86,000 jobs in October, surpassing the 69,000 forecast from economists surveyed by Reuters. The report represents the most recent installment in a series of labour market data released this week, culminating on Friday with the publication of the government’s payrolls report.
Sterling was up 0.38% at $1.3462, after rising to a more than seven-week high of $1.3503 ahead of the Bank of England’s policy announcement on Thursday. The pound was set to achieve its sixth consecutive daily increase, marking its most extended upward trend since an eight-session series that concluded on July 6. The BOE is anticipated to increase rates in response to inflationary pressures stemming from rising energy costs, although it may resist investors’ expectations for multiple additional hikes in the coming year. The Bank of Japan meeting minutes from September, when policymakers raised rates to a 31-year high of 1.25%, highlighted expectations for further tightening, with one board member indicating the potential for more rapid increases. The Australian dollar appreciated 0.09% against the US dollar to $0.701, while New Zealand’s kiwi increased by 0.12% to $0.5627.
