Forex Today: Dollar shows no signs of strength as US holds midterm elections

Key developments to watch on Tuesday, 3 November:

September Factory Orders and JOLTS Job Openings figures from the United States (US) are due in the second half of Tuesday. Ahead of those releases, financial markets remain cautious in early trading, with attention centred on the US midterm elections.

Modest selling pressure on the US Dollar (USD) at the start of the week took the USD Index to a one-month low near 101.40 in Monday's European session. Losses were subsequently contained by a stronger-than-forecast Manufacturing Purchasing Managers' Index (PMI) from the Institute for Supply Management (ISM). Declines in Wall Street's main indices provided additional support, allowing the USD Index to recover much of its intraday fall and finish only slightly lower. In early trading on Tuesday, the USD Index holds within a narrow range above 101.70, while US equity index futures are down between 0.1% and 0.5%.

Dollar faces changing political pressures as US midterms arrive

The US midterm elections “are taking place today,” according to Commerzbank’s Norman Liebke. He says the first results are “likely to start coming in shortly after midnight CET,” although results in “particularly closely contested states may not become clear until several days after the election.” Citing the latest polls, he observes that “the Republicans appear headed for a significant defeat and could lose not only their majority in the House of Representatives but also control of the Senate.”

For markets, the eventual composition of Congress will determine the Dollar's response, Liebke argues. He writes: “If only the House of Representatives changes hands, the Dollar would likely face some headwinds as well, albeit to a lesser extent,” contrasting this with the alternative: “if the Republicans retain control of both chambers, this should instead provide support for the Dollar.”

A 25 basis point (bps) increase in the policy rate, from 4.6% to 4.85%, was announced by the Reserve Bank of Australia (RBA) during the Asian session. "With revised inflation outlook and ongoing upside risks, board decides further tightening of financial conditions is necessary to support inflation return to target," read the RBA's policy statement. At the press conference following the decision, RBA Governor Michele Bullock said that pausing to assess incoming data would probably now be the best approach. Following Monday's fall of nearly 0.5%, AUD/USD remains under pressure early on Tuesday, trading below 0.7000 at a two-week low.

Crude Oil fell sharply on Monday as hopes of a diplomatic solution between the US and Iran grew after US Vice President JD Vance said Washington had made “progress” in indirect peace talks. Early on Tuesday, however, prices rose following reports of US military strikes on Iranian targets in the Strait of Hormuz. The strikes, which followed surface-to-air missile threats against US assets, signalled a possible escalation in the conflict.

EUR/USD advanced towards 1.1250 as buying momentum strengthened during Monday's European session, but surrendered much of that day's gains in US trading. The pair is rangebound below 1.1200 early on Tuesday, ahead of speeches later in the day by several European Central Bank (ECB) policymakers.

GBP/USD moved into consolidation around 1.3400 after Monday brought its fourth successive positive daily close.

USD/JPY is fluctuating within a tight band below 158.00, following a gain of about 0.2% on Monday.

NZD/USD finished Monday lower despite widespread USD weakness. A corrective rise early on Tuesday has taken the pair to around 0.5630. Market participants will turn their attention to New Zealand's third-quarter employment figures in the opening hours of Wednesday's Asian session.

After falling sharply towards the end of last week, Gold (XAU/USD) recovered nearly 2% on Monday. That recovery is proving difficult to extend early on Tuesday: XAU/USD is slipping towards $3,900, with losses already amounting to about 1% on the day.