- The dollar is holding firm into the vote. The Bloomberg Dollar Spot Index touched its highest level since May 2025 this month on stronger-than-expected inflation data, and the currency is on track for a second straight monthly gain, up about 1.8% so far in 2026.
- Positioning remains bullish. Asset managers and other non-commercial traders held just under $40 billion of bets on a stronger dollar as of the week of Oct. 20, according to CFTC data, and they have been upbeat on the currency since mid-March.
- Gridlock may not hurt much. Polls suggest Democrats could win at least one chamber of Congress on Nov. 3; Citigroup says the dollar tends to weaken after midterms that produce divided government but expects any dip to be short-lived, and Bank of America says it would fade a selloff.
- The Fed may be the biggest driver. The central bank, which raised rates in September for the first time in three years, held steady this week with Chair Kevin Warsh signaling readiness to act, and it is expected to resume hikes after the election; Morgan Stanley has dropped its call for a weaker dollar this year.
What Happened?
The dollar’s rally may have enough momentum to ride out the US midterm elections, Bloomberg reported, as high interest rates and AI-related investment keep drawing capital into the US. Manulife Investment Management’s Nathan Thooft said currencies are driven more by growth, inflation, rates and capital flows than by elections, and that a divided government could bring a degree of stability. Bank of America’s Alex Cohen noted that President Donald Trump could veto Democratic efforts to add AI regulation, leaving a key driver of US stocks intact.
Why It Matters?
A strong dollar tightens financial conditions, weighs on US multinationals’ overseas earnings and makes dollar-priced commodities more expensive for foreign buyers. Its strength this year has also been supported by oil, which has risen about 80% as the war with Iran upended energy flows, hurting importers’ currencies such as the yen and the euro. If the Fed resumes hiking after the vote, the rate gap that favors the dollar would widen further. As Steven Englander, a global head of G-10 FX research quoted in the report, put it, any further strength depends on markets expecting the Fed to keep inflation low and real rates high.
What’s Next?
Watch the Nov. 3 results and the Fed’s next steps. Man Group’s Kristina Hooper warned that a slowdown in AI capital spending could hurt US growth and pressure the dollar over the longer term. CIBC’s Noah Buffam said the key for currencies is how Trump acts on Iran after the vote, and that the dollar could sell off alongside oil if military action is limited.
Affected Tickers and Coins: UUP, TLT, SPY
Source: Bloomberg
