102.00 area: United States Dollar Index remains steady before US midterm elections

• Safe-haven demand supports the US Dollar after covert US military attacks on Iran's Qeshm Island.
• With prediction markets pointing to Democratic gains in the Senate, traders assess uncertainty over the midterm elections.
• Near 73% odds of a December Fed rate hike persist as elevated energy costs fuel inflation worries.

The US Dollar Index (DXY) is steady near 101.80. Following a modest decline the previous day, the index is holding its ground in Tuesday's Asian trading. It tracks the US Dollar (USD) against six major currencies.

Caution ahead of the US midterm elections is helping the US Dollar maintain its footing. Ongoing conflicts with Iran have driven energy prices higher, intensifying political pressure on US President Donald Trump and the Republican Party. Prediction markets now put the probability of the Democratic Party taking control of the US Senate at 74%, underlining the high political stakes of the vote.

The US jobs report due later this week is another focus for market participants. Expected to provide a fresh assessment of labour market conditions, the data will help inform expectations for subsequent monetary policy decisions. The Federal Reserve remains hawkish. Following an October policy pause, the CME FedWatch Tool currently indicates roughly a 73% probability of a December rate hike.

Escalating military hostilities are also sustaining safe-haven demand for the Greenback. Citing US officials, The Wall Street Journal reported that the United States attacked Iran’s Qeshm Island on Monday. The operation was the latest in a series of covert, limited strikes by Washington in recent weeks. The military actions came shortly after President Trump played down the prospect of a full-scale return to war with Iran after Tuesday's elections.

Dollar and yields ease on patient Fed tone and AI growth worries

Last week's loss of momentum in the Dollar and short-term US rates reflected a patient Fed message and concerns over AI investment, according to strategists at Brown Brothers Harriman. They report that “USD and short-term Treasury yields drifted lower” after Fed Chair Kevin Warsh “struck a patient tone despite stalled progress on US inflation.” The strategists add that “concerns about an AI investment slowdown compounded the move, casting doubt on the US growth outlook and dampening Fed rate hike expectations,” adding to downward pressure on the currency and front-end yields.

October payrolls to test signs of stabilising US labour demand

Friday's October nonfarm payrolls report will be a key gauge of US labour market conditions, according to Brown Brothers Harriman’s Elias Haddad. He cites a consensus forecast for a “+65k rise in payrolls vs. +29k in September, consistent with stabilizing labor demand.” BBH also notes that the “unemployment rate is expected to hold at 4.2%, a tick higher than the FOMC 2026 projection of 4.1%,” suggesting a slightly softer backdrop than the Fed’s longer-term assessment. Pay trends will be closely watched too, with “average hourly earnings… forecast to rise 0.3% m/m vs. 0.1% in September, and ease at an annual pace of 2.9% y/y vs. 3.0% in September,” indicating that underlying wage pressures may continue to moderate despite a firmer monthly increase.