The US dollar fell to a one-month low on Wednesday after Democrats won control of both the Senate and the House in the midterm elections. Investors weighed whether a new Congress could bring tighter rules for artificial intelligence and slow the US economy.
The dollar index, which tracks the US currency against six major peers, was last trading at 101.41. Several major currencies gained ground against the greenback.
Democrats won in states that have long voted Republican, according to Reuters. The results raised fears that opposition to data centers could gain new momentum in Washington.
Why AI Rules Matter for the Dollar
Much of recent US economic growth has been tied to spending on artificial intelligence. Investors worry that stricter AI regulation could cut into that spending and weigh on growth.
Slower growth could reduce the dollar’s appeal. It could also lower the need for interest rate hikes, which usually support a currency.
Moh Siong Sim, currency strategist at OCBC, said the market moves fit with concerns about greater scrutiny of AI. He pointed to the weaker performance of the Nasdaq as a sign of those worries.
Sim also said passing laws at the federal level remains difficult even with a Democratic sweep. President Donald Trump still holds veto power over legislation.
George Vessey, lead FX and macro strategist at Convera, said investors appear to see the result as a limit on future policy. He said they do not view it as a basic challenge to the wider US growth story.
Vessey said the “Blue Wave” has checked the dollar’s advance. He added that any longer period of weakness will likely depend more on yields, the AI trade and economic data than on politics.
Euro, Pound and Safe Havens Gain
The euro rose 0.4% to $1.1236, its highest level in nearly two weeks. The British pound climbed 0.46% to $1.3475, its highest in about seven weeks.
The Japanese yen and Swiss franc, both seen as safe-haven currencies, also strengthened. The dollar slipped 0.54% to 0.8162 francs and fell 0.38% to 158.09 yen.
The 10-year Treasury yield dropped nearly 3 basis points to 4.921%. Lower yields can reduce demand for dollar-based assets.
China’s offshore yuan moved the other way, falling 0.1% to 6.6755 per dollar. On Tuesday it posted its biggest one-day drop since May 15 after the People’s Bank of China raised foreign currency reserve requirements to slow the yuan’s rally.
Carol Kong, currency strategist at Commonwealth Bank of Australia, said she is watching the risk of escalation in the Middle East. Trump has declined to rule out a return to combat operations.
Kong said greater aggression in the conflict could send oil prices sharply higher and support the dollar. Oil edged up to $103.75 a barrel on Wednesday after easing about 1% on Tuesday.
Traders are also looking ahead to the Bank of England’s policy decision on Thursday. The central bank is expected to raise interest rates for the first time since August 2023.
Bitcoin edged higher to $78,315.53. The cryptocurrency has been under pressure in recent days following a record $6.3 billion heist at Binance.
