Dollar dips with US midterm results in focus

The question of whether Democrats can wrest control of Congress from Donald Trump’s Republicans was likely still hours away from a definitive answer.

The euro gained 0.2% to $1.1212, while the yen strengthened to 158.30 per US dollar in early trading. The U.S. dollar index, which measures downside against a basket of six currencies, fell 0.2 percent to 101.7.

The benchmark US 10-year Treasury yield fell 4 basis points to 4.919%.

“Given that the Democrats are currently favoured, we expect them to control both the House and the Senate,” Commonwealth Bank of Australia currency strategist Carol Kong said.

“If that ​pans out, the US dollar could sell off further from here, because a Democratic sweep would limit government spending over Trump’s term.”

As of 7:30 p.m. ET (0030 GMT), US media outlets had projected winners in a handful of House races after polls ​closed in 10 states, with voting still under way across much of the country.

Kong said investors were ​also watching the risk of an escalation in the Middle East depending on the election outcome. “If the Republicans lose control of the House and the Senate, what will the president do? He has said before that he will resume the bombing campaign against Iran after the election, so we will be watching that closely,” she said. “If he steps up his attacks in the conflict, then we could see a sharp rise in oil prices, which would support the dollar.”

Oil prices were little changed at $103.85 per barrel. a barrel after falling about 1% on Tuesday to its lowest level in nearly four weeks. Markets are weighing on talks to end the wars in Iran and Ukraine amid concerns that attacks in the last two conflicts could further disrupt supplies. Sterling rose to $1.3440 as traders focused on Thursday’s Bank of England policy statement. The Central Bank’s Monetary Policy Committee is expected to raise interest rates for the first time in August 2023. China’s offshore yuan last traded at 6.6673 per dollar, stabilizing after Tuesday’s biggest one-day decline since May 15, when the People’s Bank of China increased the amount of foreign exchange reserves financial institutions must hold to slow the yuan’s rise.