Highlights:
- Democrats win both the House and the Senate to regain control of Congress.
- Dollar trades modestly lower, as the outcome was largely priced in.
- We see a Democratic sweep as mildly bearish for USD, but not a game changer.
- Gridlock should rein in fiscal stimulus and take some heat out of Treasury yields.
- Veto and elevated yields limit dollar downside, with payrolls next on Friday.
The US midterm elections delivered a comprehensive victory for the Democrats, who have seized control of Congress after a chastening night for the Republicans.
In the end, the opinion polls called it right, and it was a very comfortable night for the Democrats, who have regained control of Congress with victories in both the House and the Senate. Voters have emphatically turned their back on President Trump amid broad dissatisfaction with the cost of living, his tariffs and the Iran war, and even Republican strongholds such as Texas, Kansas and South Carolina turned blue for the first time in decades. The margin was so wide that the House was called just before 10pm ET and CNN projected the Senate at 11:35pm ET, banishing any fears of a drawn-out or contested count.
A fair few races are still to be called in the House, and a handful in the Senate, at the time of writing, though forecasts point to Democrats winning at least 245 seats in the House and 54 in the Senate. The initial reaction in markets was to send the dollar lower, though the moves were rather limited. The ease with which the Democrats won both chambers, the Senate in particular, is perhaps something of a surprise, but ultimately this is the outcome that was broadly expected and largely priced in by markets. Congress has turned emphatically blue, and for the first time in his second term, Trump no longer holds the keys to Capitol Hill.
Read the complete analysis here.
