The US Dollar (USD) has retraced most of its previous losses on Monday, but remains on the defensive with investors wary of holding large US Dollar longs ahead of the US midterm elections, while growing concerns about an AI bubble pose an additional threat. Against this background, the US Dollar Index (DXY) trades at 101.66 at the time of writing, still close to the bottom of the October range at the 100.40 area.
Macroeconomic data released last week reinforced the rhetoric of US economic exceptionalism. Gross Domestic Product (GDP) growth accelerated sharply in 3Q, and inflation remains at levels well above the Federal Reserve’s (Fed) target, keeping pressure to hike interest rates further. The US Dollar index, however, is failing to find support from these figures, and has shown a capped tone during the last two weeks.
Midterm elections and tech sell-off curb US Dollar’s upside attempts
Analysts at MUFG/BTMU caution that a “damaging defeat for the Republicans could put a dampener on US Dollar strength” on Tuesday. They argue such an outcome would “limit room for further fiscal stimulus” and could shift market focus toward “less market friendly policies beyond the current Presidency,” adding another layer of political uncertainty to the US Dollar outlook.
In a similar vein, ING highlights positioning and political risk as key near-term drivers, noting that “the main risk for the Dollar today is some precautionary unwinding of net-long positions ahead of Tuesday’s US midterm elections.”
The bank points out that “a Democratic sweep is trading around 68% in prediction markets,” a scenario that “could be seen as slightly negative for the US Dollar from a few angles, from higher risk of government shutdown and gridlock on debt ceiling negotiations to potential damage to already shaky AI-related sentiment.” Against this backdrop, ING concludes that “we’d be cautious in chasing the USD upside in the next few days.”
BBH experts, on the other hand, put the focus on equity markets, where the “tech sell-off can keep USD on defensive in the near term.” BBH, however, assesses that “strong US economic activity and rising price pressures reinforce the Fed’s hawkish bias,” meaning that “rate differentials” should remain “supportive of USD” even as near-term sentiment softens.
US midterm elections FAQs
The US midterm elections are the federal elections held halfway through a president’s four-year term. Voters choose all 435 members of the House of Representatives, about one-third of the Senate, and, in many states, governors and other state and local officials.
Election Day is Tuesday, November 3, 2026. Federal law sets it as the Tuesday after the first Monday in November. Early voting and mail voting are already under way in many states.
They decide which party controls each chamber of Congress for the last two years of President Donald Trump’s term. The majority party sets the legislative agenda, chooses committee leaders and, in the Senate, controls confirmations of judges and senior officials.
No. The president is elected every four years; the next presidential election is in November 2028. Midterms are often seen as a referendum on the sitting president’s party, which historically tends to lose House seats.
Most analysts expect a modest, short-lived reaction in the US Dollar rather than a lasting trend. A divided Congress is widely seen as the base case and is partly priced in. Treasury yields may react more noticeably to the results. Outcomes that raise expectations of fiscal stimulus tend to lift yields and the US Dollar, while gridlock that limits new spending can pull both lower. Political friction, such as funding or debt-ceiling standoffs, can also briefly lift the Dollar as a safe haven. Over six to twelve months, growth and Federal Reserve policy matter more than the vote.
US stocks have historically been weak before midterms and strong after them. Since 1950, the S&P 500 has been higher 12 months after every midterm election, 19 out of 19, with an average gain of about 15%. Analysts link the pattern to uncertainty fading once results are known. Past performance does not guarantee future returns, and some strategists note that high valuations in 2026 could test the streak.
Markets have often welcomed a divided government because gridlock makes sweeping changes to taxes, spending and regulation less likely. Under a Republican president, the S&P 500 has historically done well in years following midterms that split control of Congress. The risks are funding deadlines, debt-ceiling fights and congressional investigations, which can add short-term volatility.
