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Published On: Thu, Nov 8th, 2018

US Dollar Down After Midterm Elections

Midterm elections sent the dollar lower on Wednesday, as Republicans retained the Senate and Democrats gained control of the House of Representatives. The split Congress help equities rise in early morning trade while putting pressure on the greenback.

“Those that worked with me in this incredible Midterm Election, embracing certain policies and principles, did very well. Those that did not, say goodbye! Yesterday was such a very Big Win, and all under the pressure of a Nasty and Hostile Media!,” United States President Donald Trump tweeted on the elections.

photo by photoSteve101 via Flickr

The U.S. dollar index fell 0.37% as of 12:00 PM ET, losing ground against a basket of six major currencies. The index was down as much as 0.41% earlier in the day.

The Federal Reserve will be heading into a two-day policy meeting on Wednesday, which will be the focus of forex investors. The meeting is not being considered a major concern in overall markets as there is little expectation of a monetary policy change occurring. It is widely expected that the Fed will push an additional rate hike in December.

USD/JPY slipped 0.10%, while the Canadian dollar gained ground against the greenback. USD/CAD fell 0,15%.

The euro is also higher, rising 0.32% against the dollar.

Reports suggest that the divided congress may put an end to the dollar’s bull run. Morgan Stanley is suggesting that the run may end in 2019 despite it being expected that the Democrats would take the House in the midterm elections. Fears that a gridlocked government may occur during the remainder of Trump’s term may impact potential tax cuts and infrastructure spending increases.

The greenback has outperformed all of its peers this year.

Long-term bearish outlooks are being projected, and any progress of the Republican agenda will now be harder to push through. Markets reportedly got ahead of themselves before the election, and this is expected to cause a leveling out to occur in the final two years of Trump’s presidency.

Citigroup claims that midterms, based on historical measures, do not have a tendency to break currency trends for long. The selloff is being seen as an opportunity for investors to buy low and go for long-term progress.

Investors started to pull out of the currency before the midterms in fears that any party would gain full control of the government. The dollar gains on talks of tax reform, and with fiscal stimulus less likely, the dollar is expected to be subdued. Fears that a fully Republican Congress would increase the deficit and boost trade tension have also faded.

Author: Jacob Maslow

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