Forex Today: Dollar strength remains elusive as US votes in midterm elections

What is in focus for markets on Tuesday, 3 November?

Caution continues to shape financial market sentiment early on Tuesday, with attention centred on the midterm elections in the United States (US). September Factory Orders and JOLTS Job Openings figures from the US are due in the second half of the day.

Modest selling pressure on the US Dollar (USD) at the start of the week pushed the USD Index towards 101.40, its lowest in a month, during Monday's European session. The currency subsequently pared its decline after the Institute for Supply Management (ISM) released stronger-than-expected Manufacturing Purchasing Managers' Index (PMI) figures. Falling benchmark Wall Street indices also lent support to the USD Index, allowing it to recover much of the day's losses and finish only marginally lower. In early Tuesday trading, the USD Index is confined to a narrow range above 101.70, as US stock index futures decline between 0.1% and 0.5%.

How could US midterms reshape political headwinds for the Dollar?

With US midterm elections under way, Commerzbank’s Norman Liebke says they “are taking place today,” and that 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 adds 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 the Dollar, the eventual composition of Congress will determine the market response, according to Liebke. He writes: “If only the House of Representatives changes hands, the Dollar would likely face some headwinds as well, albeit to a lesser extent,” but adds that “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 Asian trading. "With revised inflation outlook and ongoing upside risks, board decides further tightening of financial conditions is necessary to support inflation return to target," the central bank stated in its policy announcement. Speaking at the press conference after the meeting, RBA Governor Michele Bullock said the most appropriate course now would probably be to pause and review incoming data. Following Monday's decline of nearly 0.5%, AUD/USD remains under pressure early on Tuesday, trading below 0.7000 at a two-week low.

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

EUR/USD advanced towards 1.1250 as buying momentum strengthened during Monday's European session, only to surrender much of the day's gains in American 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 is consolidating near 1.3400 after Monday marked its fourth successive trading session of gains.

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

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

A rebound from the steep fall towards the end of last week helped Gold (XAU/USD) gain nearly 2% on Monday. That recovery is proving difficult to sustain early on Tuesday: XAU/USD is retreating towards $3,900, with losses already amounting to about 1% for the day.