The US dollar rallied against a basket of its peers as the results of the US Congressional elections streamed in. Investors prepared for the Republicans to take back control of the House of Representatives while the Senate remained a tossup.
Investors were largely happy that Democrats might lose control of the House, making it difficult for President Joe Biden to pass some of his most ambitious laws. However, the Republican Party will not get the absolute majority it had expected going into the polls based on President Joe Biden’s rising unpopularity.
The Democratic Party had held onto many of the seats it was projected to lose to Republicans, which means that the GOP will most likely have a slim majority if its wins control of the House of Representatives. Many have pointed out that the Supreme Court’s decision to overturn Roe v. Wade turned the tide for the Democrats.
The impact of a split Congress on the markets means that investors will be spared of the excesses of each party and that the two parties will have to agree on any laws passed. Therefore, investors will expect stability and sanity in the laws passed by the two houses of Congress.
The US dollar’s rally against its peers was mainly fueled by expectations that the Republicans would win control of at least one of the houses. However, the situation could reverse quickly if the Democrats retain control of both houses.
The dollar posted gains against the Japanese yen, as evidenced by the rally in the USDJPY currency pair. The dollar also rallied against the euro, the pound, the Australian, New Zealand and the Canadian dollar.
The fate of the US dollar lies in the outcome of the mid-term elections, after which investor attention will shift to other macro factors, such as the Fed’s interest rate hiking schedule and the inflation situation in the United States and other countries.
*This is not investment advice.
US Dollar Index price chart.
The US Dollar Index has risen 57 pips (0.52%) at writing as the results of the mid-term elections were streaming in.