US Dollar: Trades on macro lens – ING

ING’s Chris Turner notes Democrats’ sweeping midterm victory has initially weighed on the Dollar and short-dated US rates, but much of the move is being reversed as investors refocus on a strong US economy and a tightening Federal Reserve. He highlights DXY support near 101.25 and warns that any bond market upset could pressure USD/CHF, echoing August’s reaction.

Democrat win and AI worries

"Given AI's role in powering the US economy, speculation over whether a new Democrat Congress would slow AI capex plans briefly hit markets. The chip exporter-heavy stock markets of Korea and Taiwan were briefly down 3-4% overnight on news of the blue wave, but have since recouped all those losses."

"That the initial market moves are being reversed probably owes to the fact that the Democrats do not take office until January. Also, one wild-card risk removed from the dollar's downside has been President Trump accepting these results. However, overnight price action could provide a preview for markets in 2027."

"We had felt that a Democrat Congress would be a mild dollar negative – both in terms of what it would mean for the AI story and the prospect of a prolonged US government shutdown potentially from next summer."

"Also in focus today will be the 1330CET release of the US Treasury's quarterly refunding plans. Views are that the Treasury will continue to try cutting long-end supply. Let's see whether the short-end can handle all the new issuance."

"As above, we would not chase the dollar lower today for what, after all, could be a 2027 story. Instead, the dollar looks likely to be traded through the macro/monetary lens, which remains supportive. The overnight DXY low of 101.25 looks to be an important support level which may hold into October jobs report."

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