US Dollar Index Retests Four-Week Lows, Hammered By US Midterm Results

• The US Dollar Index dives 0.6% on Wednesday and extends losses to four-week lows at 101.25.

• The landslide victory of the Democratic Party has sent the US Dollar tumbling on Wednesday.

• Concerns about AI regulation have pushed investors away from equities to the safety of US Government Bonds, weighing on yields and the USD.

The US Dollar (USD) is showing the weakest performance among the major currencies on Thursday, hammered by the US President Donald Trump’s defeat in the midterm election. The US Dollar Index (DXY), which measures the value of the USD against six majors, is trading 0.6% lower on the day, with bears launching a fresh attack to the 101.25 support area at the time of writing.

The Democrats have taken control of the US Congress and also the more disputed Senate in Tuesday's elections, which delivered a historic defeat to the Republican Party, which has lost historical strongholds like Texas, Kansas and North Carolina where the Republicans had held the government for decades.

Tech shares came under pressure following the elections’ outcome. Concerns that the Democrats will push for tougher regulation in the AI sector and stop most of the plans to build data centers provided a fresh blow to tech shares during the Asian session and boosted demand for the safe-haven government bonds. The yield of the 10-year note dropped a maximum of 10 pips following the election results, adding bearish pressure on the USD.

ING: Overnight price action provides a preview for markets in 2027

ING’s Chris Turner observes that the fact that the Democrats do not take office until January might have calmed investors and kept the US Dollar from falling further, but warns that “overnight price action could provide a preview for markets in 2027," as, in his opinion, "A Democratic 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."

Bearing this in Mind, the ING Analysis Team sees US Dollar bears contained amid “a still-resilient US economy and at least one more rate hike from the Federal Reserve.”

In that sense, the US ADP Employment Change and the ISM Services Purchasing Managers' Index (PMI) will gather particular interest later in the day. The highlight of the week, however, will be Friday's Nonfarm Payrolls (NFP) report, due on Friday. Anything different from a strong labour market report next Friday might increase doubts about the US economic outlook and add pressure on the USD.