US Dollar: Midterm risks weigh on Greenback – ING

ING’s Francesco Pesole notes that recent pressure on US tech stocks has supported Treasuries and modestly weighed on the Dollar, though underlying demand remains intact with hawkish US data and a still-alert Federal Reserve. He highlights US midterm election positioning as a key near-term risk, warning that a potential Democratic sweep could be mildly negative for the Dollar.

Election positioning tempers Dollar upside

"Fresh pressure on tech stocks has triggered some safe-haven buying in US Treasuries and weighed on the dollar as the front end followed lower. Moves are contained in both equities and FX, but it’s a reminder that the greenback still faces downside risks from oscillating AI sentiment."

"At the same time, whenever tech stocks don’t dominate headlines, the dollar has had no trouble attracting buyers, and we don’t think Wednesday’s FOMC changed that. Incidentally, yesterday’s US data was hawkish-leaning, with 3Q growth slightly above consensus at 3.4% and core PCE at 0.3% month-on-month in September – enough to keep the Federal Reserve on high alert."

"To us, the main risk for the dollar today is some precautionary unwinding of net-long positions ahead of Tuesday’s US midterm elections. A Democratic sweep is trading around 68% in prediction markets, and 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. We’d be cautious in chasing the USD upside in the next few days."

"Meanwhile, resurgent AI-related jitters and the upcoming US midterms are increasing downside risks for the dollar, in our view, although a still-hawkish Fed argues against major corrections."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)