US Dollar: Macro Backdrop Shapes Trading – ING

The Dollar and short-dated US rates initially came under pressure after Democrats’ sweeping midterm victory, though much of that reaction is now unwinding, according to ING’s Chris Turner. Investors are turning their attention back to US economic strength and Federal Reserve tightening. Turner points to support for DXY near 101.25, while cautioning that disruption in the bond market could weigh on USD/CHF, as seen in August.

Could a Democrat win unsettle AI investment plans?

"Given AI's role in powering the US economy, speculation over whether a new Democrat Congress would slow AI capex plans briefly hit markets. The chip exporter-heavy stock markets of Korea and Taiwan were briefly down 3-4% overnight on news of the blue wave, but have since recouped all those losses."

"That the initial market moves are being reversed probably owes to the fact that the Democrats do not take office until January. Also, one wild-card risk removed from the dollar's downside has been President Trump accepting these results. However, overnight price action could provide a preview for markets in 2027."

"We had felt that a Democrat Congress would be a mild dollar negative – both in terms of what it would mean for the AI story and the prospect of a prolonged US government shutdown potentially from next summer."

"Also in focus today will be the 1330CET release of the US Treasury's quarterly refunding plans. Views are that the Treasury will continue to try cutting long-end supply. Let's see whether the short-end can handle all the new issuance."

"As above, we would not chase the dollar lower today for what, after all, could be a 2027 story. Instead, the dollar looks likely to be traded through the macro/monetary lens, which remains supportive. The overnight DXY low of 101.25 looks to be an important support level which may hold into October jobs report."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)