The dollar cut its losses on Wednesday as investors further
digested the results of the U.S. midterm congressional
elections, after an initial sell-off on expectations that the
outcome would make further fiscal stimulus measures unlikely.
The elections delivered the most expected outcome: split
control of the U.S. Congress,
with Democrats winning control of the House of Representatives
and Republicans cementing their majority in the Senate.
“There was this expectation that if we didn’t get a divided
Congress, we might see risk sentiment becoming a little shaky,
but since that didn’t happen we have a risk-on move,” said
Mazen Issa, senior foreign exchange strategist at TD Securities
in New York.
Market watchers believe the divided Congress will make further
tax cuts and deregulation unlikely for now, which contributed
to the dollar’s early fall.
The greenback has been the surprise winner in the global
currency markets this year after Republicans pushed through
President Donald Trump’s significant tax cuts, and strong
economic growth prompted the Federal Reserve to steadily raise
By Wednesday afternoon, the focus was turning to the Fed, with
the U.S. central bank’s Federal Open Market Committee (FOMC)
due to release its policy decision on Thursday at the end of a
“I think traders are squaring positions ahead of tomorrow’s
FOMC decision,” said John Doyle, vice president of dealing and
trading at Tempus Consulting. The Fed is expected to hold rates
steady on Thursday, but the language in the policy statement
will be watched closely. Fed Chair Jerome Powell is widely
expected to raise interest rates in December, which would be
the fourth rate hike this year, as U.S. economic fundamentals
“The Fed will likely raise rates next month, but that is
already priced in so will not likely add any additional support
to the dollar,” said Doyle. Against a basket of six other
currencies, the dollar fell 0.13 percent to 96.196.
Equity markets rallied as investors pushed funds into riskier
assets, with the Dow and the S&P 500 index each closing up
more than 2 percent on the day.
The euro was last up 0.05 percent at $1.143. Earlier, the
single currency was up more than 1 percent above this year’s
trough of $1.1301, reached on Aug. 15.
“It was our belief that the U.S. dollar move last month was
overdone and the greenback is now searching for a new, slightly
weaker range against the euro and a handful of other European
currencies,” Doyle said.