The US dollar fell to a one-month low after Democrats captured Congress in the midterm elections. Investors worried about tougher AI regulation and watched Treasury yields slide. The euro, yen, Swiss franc and sterling all gained.
The US dollar tumbled to a one-month low on Wednesday as the Democrats' capture of Congress spurred fears of tougher regulation of the AI sector, which could weigh on US economic growth.
Sliding Treasury yields added pressure, as investors sought the safety of bonds while weighing the implications of gridlock in Washington. Traders also reined in rate hike wagers for next year.
Euro and safe-haven currencies gain
The euro gained 0.6% to $1.1258, while the dollar index fell 0.6% to a one-month low of 101.27. The 10-year Treasury yield dropped nearly 5 basis points to 4.915%.
The dollar's decline was particularly pronounced against the yen and the Swiss franc, both safe-haven currencies. The dollar weakened 0.6% to 0.8159 against the franc, and the yen jumped nearly 0.8% to 157.92 per US dollar.
Strategists see limits to the AI-regulation trade
Moh Siong Sim, currency strategist at OCBC, said the price action is consistent with concerns about greater scrutiny on AI. However, he also noted that "it is still difficult to pass legislation at the federal level" given the high hurdle under President Trump.
Carol Kong, currency strategist at Commonwealth Bank of Australia, said investor focus will shift back to fundamental and economic drivers once the elections are over. She said US economic data will continue to paint a picture of a strong US economy, which will support further rate hikes and therefore the dollar.
Sterling rises ahead of the Bank of England
Sterling rose 0.3% to $1.3458, with traders eyeing the Bank of England's policy announcement on Thursday. The central bank's Monetary Policy Committee is expected to raise interest rates for the first time since August 2023.
Source: Investing.com
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