US Dollar confidence could weaken amid US midterms and AI jitters, experts agree

The US Dollar Index (DXY) stands at 101.66 at the time of writing. That leaves it near the lower end of October's range, around 100.40. Although the US Dollar (USD) has recovered most of its earlier losses on Monday, it remains on the defensive. Investors are reluctant to hold sizeable US Dollar long positions before the US midterm elections, while mounting fears of an AI bubble present a further risk.

A sharp acceleration in Gross Domestic Product (GDP) growth in 3Q, alongside inflation still well above the Federal Reserve's (Fed) target, has maintained pressure for further interest rate increases. Last week's macroeconomic releases thus strengthened the case for US economic exceptionalism. Yet these figures have provided little support for the US Dollar index, whose gains have remained constrained over the past two weeks.

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US Dollar gains constrained by midterms and tech sell-off

Tuesday's vote could bring a “damaging defeat for the Republicans could put a dampener on US Dollar strength”, analysts at MUFG/BTMU warn. In their view, that result would “limit room for further fiscal stimulus” and potentially redirect market attention to “less market friendly policies beyond the current Presidency,” increasing political uncertainty around the US Dollar outlook.

Positioning and political uncertainty also dominate ING's assessment of near-term drivers. The bank says “the main risk for the Dollar today is some precautionary unwinding of net-long positions ahead of Tuesday’s US midterm elections.”

According to ING, “a Democratic sweep is trading around 68% in prediction markets,” and that outcome “could be seen as slightly negative for the US Dollar from a few angles, from higher risk of government shutdown and gridlock on debt ceiling negotiations to potential damage to already shaky AI-related sentiment.” Its resulting stance is that “we’d be cautious in chasing the USD upside in the next few days.”

Equity markets are the main concern for BBH experts, who warn that the “tech sell-off can keep USD on defensive in the near term.” Still, BBH argues that “strong US economic activity and rising price pressures reinforce the Fed’s hawkish bias,” leaving “rate differentials” likely to stay “supportive of USD” despite weaker near-term sentiment.

US midterm elections: key questions

What does the US midterm vote cover?

Halfway through a president's four-year term, the US holds federal elections known as the midterms. All 435 House of Representatives seats and roughly one-third of Senate seats are contested. In many states, voters also elect governors and other state and local officials.

2026 midterms: what is the election date?

Tuesday, 3 November 2026 is Election Day. Under federal law, the vote falls on the Tuesday following November's first Monday. Many states have already begun early and postal voting.

What is at stake in the US midterms?

Control of both chambers of Congress during the final two years of President Donald Trump's term is determined by the midterms. In each chamber, the majority party directs the legislative agenda and selects committee leaders. The Senate majority also controls confirmations of judges and senior officials.

2026 midterms: is the presidency being contested?

No. Presidential elections take place every four years, with the next scheduled for November 2028. The midterms are frequently viewed as a verdict on the incumbent president's party, which has historically tended to lose seats in the House.

2026 midterms: what could drive the US dollar's response?

For the US Dollar, most analysts anticipate a limited, temporary response rather than a sustained trend. Markets broadly treat a divided Congress as the baseline outcome and have partly priced it in. The reaction in Treasury yields may be more pronounced. Results that increase expectations for fiscal stimulus typically push yields and the US Dollar higher; legislative gridlock restricting fresh spending can depress both. Funding disputes or debt-ceiling stand-offs can also briefly support the Dollar's safe-haven appeal. Over six to twelve months, however, economic growth and Federal Reserve policy carry more weight than the election result.

What is the historical midterm pattern for stocks?

Historically, US equities have tended to struggle ahead of midterms and strengthen afterwards. Since 1950, the S&P 500 has risen over the 12 months following every midterm election: 19 out of 19, averaging a gain of about 15%. Analysts attribute this pattern to uncertainty receding after the results become clear. Past performance does not guarantee future returns, and some strategists caution that elevated valuations in 2026 could challenge that record.

How do markets view split control of Congress?

By reducing the likelihood of broad changes to taxation, expenditure and regulation, legislative gridlock has often made divided government attractive to markets. With a Republican president in office, the S&P 500 has historically performed well in the years after midterms that leave Congress under split control. Funding deadlines, debt-ceiling disputes and congressional investigations remain risks that can increase short-term volatility.