The focus in the past 24 hours has rested squarely on the US mid-term elections, with all 435 seats in the House of Representatives and 35 out of 100 seats in the Senate up for grabs. With the vote count still ongoing and some votes still too close to call (and subject to potential recounts), the ruling Republican Party has extended its slim 2-seat majority in the Senate but the Democrats have regained control of the House of Representatives. Both sides are claiming victory in a high-turnout vote but the market reaction has been more uniform, with the Dollar trade-weighted index down 0.4% since Monday to a 14-session low. The Dollar, which has weakened against all major currencies in the past 48 hours, is now almost back within the narrow range which had prevailed since early August.
The Democrats have won at least 24 seats in net-terms, which has taken them over the 218-seat majority required, and will now be in a position to frustrate President Trump’s policies, including plans to further stimulate the economy via tax cuts and financial sector liberalisation. This could in turn fade the need for the Federal Reserve to continue on a hawkish rate-hiking path which has provided much Dollar support in the past six months. Moreover, senior Democratic Party members have suggested they would push for Trump to reveal his tax returns and even go as far as start impeachment proceedings against the president, which at the very least will increase political uncertainty and by extension Dollar uncertainty.
