United States Dollar Index remains stable around 102.00 as US midterm elections approach

• Safe-haven demand underpins the US Dollar after covert US military strikes on Iran's Qeshm Island.
• With prediction markets pointing to Democratic gains in the Senate, traders assess uncertainty surrounding the midterm elections.
• The probability of a December Fed rate hike remains near 73% as elevated energy costs keep inflation worries alive.

The US Dollar Index (DXY) is steady near 101.80 in Tuesday's Asian session, following modest losses the previous day. The index tracks the US Dollar (USD) against a basket of six major currencies.

Caution ahead of the US midterm elections is helping the US Dollar hold steady. High energy costs associated with the continuing conflicts with Iran have increased political pressure on US President Donald Trump and the Republican Party. Prediction markets, meanwhile, assign a 74% probability to the Democratic Party taking control of the US Senate, underlining the high political stakes of the vote.

Alongside the election, investors are closely monitoring the US jobs report due later this week for a fresh assessment of labour market conditions and indications of the monetary policy outlook. The Federal Reserve remains hawkish. Following October's policy pause, the CME FedWatch Tool now indicates roughly a 73% probability of a rate increase in December.

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, adding to a series of limited, covert strikes by Washington over recent weeks. The operations came shortly after President Trump played down the prospect of a full-scale resumption of war with Iran after Tuesday's elections.

Are Fed patience and AI growth worries weighing on the Dollar and yields?

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

Will October jobs data confirm stabilising US labour demand for Dollar watchers?

Friday's October nonfarm payrolls report will provide an important test of US labour market conditions, according to Brown Brothers Harriman’s Elias Haddad. He cites consensus forecasts 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%,” pointing to conditions that are slightly softer than the Fed’s longer-term assessment. Attention will also turn to wages, 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,” suggesting that underlying wage pressures continue to moderate somewhat despite firmer monthly growth.