Investors are preparing for the November 3 vote, which could give Democrats control over one chamber of Congress. However, the dollar remains strong due to high Fed rates and AI spending.
Investors are preparing for the US midterm elections on November 3, which according to polls could lead to Democrats gaining control of at least one chamber of Congress. Such an outcome usually weakens the dollar due to political deadlock, however the Bloomberg Dollar Spot Index this month updated its maximum since May 2025 against the backdrop of strong inflation data.
Strategists believe that the main drivers of the currency — relative economic growth, inflation, rates and capital flows — will remain unchanged regardless of the voting results. A divided Congress could even add stability to the markets, reducing uncertainty and limiting sharp policy changes.
Analysis of past elections shows that after the vote the dollar most often weakens, but this weakness, according to Citigroup experts, will be short-term. The main impetus to the currency could be given by the Fed, which is expected to resume rate hikes after the elections. The regulator kept rates unchanged at the last meeting, and the chairman stated readiness to act. In September the rate was raised for the first time in three years, which has already given the dollar its best month since March.
Maintaining AI spending will also support US assets: the president will be able to veto tighter regulation in this area. According to CFTC data, asset managers maintain a net long position in the dollar of almost 40 billion dollars.
Over a longer horizon, risks remain. A slowdown in AI investments or limitation of military actions against Iran after the elections could weaken pressure on the currency. Oil has risen 80% since the beginning of the year due to the conflict with Iran, which additionally affects exchange rates.
Overall, markets expect that the dollar's strengthening will depend primarily on the Fed's policy of keeping inflation and real rates at a high level.