Dollar Falls to One-Month Low After Democrats Secure Senate and House

The U.S. dollar dropped to a one-month low on Wednesday after Democrats won control of the Senate and the House in the midterm elections. The decline was accompanied by falling yields on benchmark Treasury bonds, prompting investors to move into U.S. Treasuries as a safe-haven asset amid expectations of political gridlock during President Donald Trump’s term.

The dollar index slipped against a basket of six currencies, while the pound, euro, yen and Swiss franc all gained relative to the greenback. The yield on the 10-year Treasury fell 4.7 basis points to 4.918%, and the two-year yield dropped 3.7 basis points to 4.597%.

"The scale of the losses will inevitably raise questions about Trump’s ability to push through his agenda over the next two years, and markets are already reacting. The dollar is under pressure as investors reassess the political outlook, while gold and silver are benefiting as safe-haven plays," said Axel Rudolph, chief technical analyst at IG.

Futures initially pointed to a sharp opening decline for U.S. equities, with the Nasdaq expected to slip on worries about AI-related companies. Later indicators suggested a possible rebound, citing President Trump’s conciliatory tone and gains in European markets.

European indices rose in early trading, with the FTSE 100 up 0.2%, Germany’s DAX gaining nearly 0.6%, France’s CAC 40 up 0.4% and Italy’s FTSE MIB climbing about 1.4%. Bank and clean-energy stocks led gains, with Danish wind-turbine maker Vestas rising nearly 5% and Ørsted jumping 7.4%.

"Some individual names are nursing significant losses today," said Kathleen Brooks, research director UK at XTB. "SpaceX is down 5% in the pre-market, and Tesla is lower by more than 4%."

Brooks linked the market reaction to expectations that a Democrat-controlled Congress could increase scrutiny of AI firms, potentially affecting a proposed merger involving Elon Musk’s companies. Gold rose 2.2%, surpassing $4,000 an ounce, while AI-related shares fell during Asian trading hours on speculation about tighter regulation.

"Investors will be parsing what this all means. For example, Gina Hinojosa won the Texas governor’s race on a ticket of wanting an immediate moratorium on datacentre buildouts," said Chris Turner, global head of markets at ING.

"Given AI’s role in powering the US economy, speculation over whether a new Democrat Congress would slow AI capital-expenditure plans briefly hit markets," Turner added.

Analysts noted that despite the shift in congressional control, President Trump retains influence over trade, tariffs, foreign policy and existing regulations, which could temper the impact of the election results on U.S. policymaking.

"There’s still a number of areas where Donald Trump can influence the markets – trade and tariffs, foreign policy, and existing regulations," said Tai Hui, market strategist at JP Morgan Asset Management.