The dollar's rally may have enough momentum to shrug off the US midterm election, with high interest rates and AI-related spending drawing capital even if the vote delivers political gridlock.
Investors are preparing for the Nov. 3 vote to bring policy paralysis that doesn't generally favor the greenback, with polls suggesting Democrats could win control of at least one chamber of Congress. Yet the Bloomberg Dollar Spot Index touched its highest level since May 2025 this month, propelled by stronger-than-expected inflation data.
"While election outcomes can influence sentiment in the short term, we believe investors should be careful not to overstate the long-term impact on the US dollar," said Nathan Thooft, senior portfolio manager at Manulife Investment Management. "Currency markets are ultimately driven more by relative economic growth, inflation, interest rates and capital flows than by election results alone."
A divided government would mean fewer changes and reduced uncertainty, providing stability for financial markets including the dollar, he said. Citigroup Inc. strategist Daniel Tobon noted that while the dollar tends to weaken after midterms, especially with a divided government, any weakness is expected to be short-lived as other factors point in the opposite direction.
The Federal Reserve is expected to resume hiking rates after the election, with Chairman Kevin Warsh signaling officials' readiness to act. The dollar has gained about 1.8% so far in 2026, prompting Wall Street strategists at Morgan Stanley to reverse their forecast for the dollar to weaken. Asset managers hold nearly $40 billion in wagers tied to dollar strengthening, according to CFTC data through the week of Oct. 20.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing