US election results send US Dollar Index (DXY) plunging to late September lows near 101.25

• Heavy selling weighs on DXY on Wednesday, with initial US election results signalling a Democratic win.
• The US Dollar faces further pressure as demand for safe-haven assets pushes US bond yields down.
• Further downside could be contained by Fed rate hike expectations and geopolitical risks before important US economic data releases.

Selling pressure sends the US Dollar Index (DXY) to its lowest level since late September during Wednesday's Asian session, as initial US midterm election results fuel political uncertainty. The index measures the Greenback against a basket of currencies. Early indications suggest that Democrats could gain control of both the House of Representatives and the Senate, raising the possibility of a Washington gridlock that could constrain government spending.

Demand for safe-haven assets also strengthens as a potential Democratic sweep could weigh on technology stocks and economic growth. The resulting renewed decline in US bond yields adds to the pressure, helping drive DXY towards the 101.25 area during the session. Nevertheless, expectations of a hawkish US Federal Reserve (Fed) and continuing geopolitical uncertainty lend the Greenback some support, containing further downside and suggesting that aggressive bearish traders should exercise caution.

Traders assign a probability of over 75% to another increase in borrowing costs by the US central bank in December, according to the EMC Group's FedWatch Tool. Tuesday's monthly Job Openings and Labor Turnover Survey, or JOLTS report, from the Labor Department reinforced those expectations: job openings climbed more than anticipated in September to 7.5 million. With economic growth remaining resilient and price pressures persisting, the figures strengthen expectations of an imminent Fed rate hike.

On the geopolitical front, President Donald Trump said on Tuesday that the US had no immediate plans to strike Iran, contrary to Israeli Prime Minister Benjamin Netanyahu's suggestion of an attack later this week. A geopolitical risk premium nevertheless persists. A senior Iranian official told Reuters that reopening the Strait of Hormuz would require sanctions to be waived and the US naval blockade to end. Iran's Islamic Revolutionary Guard Corps (IRGC) also said that four tankers had been destroyed after hitting mines south of the Strait of Hormuz.

Despite these developments, investors continue to hope for a diplomatic solution that could end the US-Iran war. Wednesday's US data calendar includes the ADP private-sector employment report and ISM Services PMI, while fresh geopolitical headlines could also influence DXY. The main focus, however, is Friday's closely followed monthly US employment release, commonly known as the Nonfarm Payrolls (NFP) report.

What does the DXY 4-hour chart show?

Technical Analysis: Can DXY Extend Its Decline?

A break below the 200-period Simple Moving Average (SMA) during the session keeps DXY's near-term outlook bearish on the 4-hour chart. Confirmation of further downside towards 100.75 and 100.24, however, requires sustained weakness below the initial support near the 38.2% Fibonacci retracement at 101.26.

Should selling resume, broader structural support lies towards 99.51 and 98.59. Any recovery would first encounter resistance at the 200-period SMA at 101.71, ahead of the 23.6% retracement at 101.89 and the recent cycle anchor near 102.92.

(The technical analysis of this story was written with the help of an AI tool. Learn more.)