Democrats Expected to Win Both Houses of Congress; Dollar Records Largest Drop Since October 2

Preliminary results of the US midterm elections show that the Democratic Party is likely to win both chambers of Congress, leading the US dollar to suffer its biggest decline in a month, while the Swiss franc and the Japanese yen have become the biggest winners in the foreign exchange market. During the Asian trading session, the Swiss franc rose nearly 1% and the yen climbed 0.7%; the US Dollar Index (DXY) fell as much as 0.4%, marking its largest drop since October 2, while the Australian dollar lagged behind. The market is concerned that a Democratic victory could lead to stricter regulations on the technology and artificial intelligence industries, putting pressure on US stocks and the dollar. If political gridlock restricts further tax cuts and government spending, US Treasuries could benefit. David Forrester, a strategist at Crédit Agricole, said the dollar’s reliance on the AI boom is revealing its weakness, and if a Democratic victory hampers data center construction, the dollar will come under pressure. However, the dollar's decline may not last. If US-Iran negotiations break down and oil prices rebound, inflation expectations and bets on a Federal Reserve rate hike may heat up, thereby supporting the dollar. In addition, Trump could still veto congressional measures to tighten AI regulation. Sumitomo Mitsui DS Asset Management strategist Rinto Maruyama believes the dollar may ultimately reverse its decline.