US Dollar rebound from post-election reversal pares Japanese Yen gains

• A rebound from the session low of 157.39 lifts USD/JPY back above 158.00.
• Reports that the Democrats had secured the House and the Senate in the midterm elections triggered broad-based US Dollar losses.
• Robust US economic fundamentals and persistent worries over the Middle East conflict underpin the USD.

USD/JPY is trading around 158.15 at the time of writing, recovering from a session low of 157.39 but remaining below its intraday peak of 158.75. The Japanese Yen (JPY) retains modest gains against the US Dollar (USD) on Wednesday, having surrendered almost half of its advance following reports of a decisive Democratic victory in the US midterm elections.

During Wednesday’s Asian trading session, confirmation in news reports that the Democrats had won control of Congress, as well as the more closely contested Senate, prompted widespread selling of the US Dollar. The outcome marked a sweeping rejection of President Donald Trump’s policies.

Prospect of stricter AI rules unsettles investors

Expectations that the Democrats will regulate the AI sector and curb data centre construction have sent investors towards the safety of US government bonds. The resulting fall in yields and the US Dollar has supported traditional safe havens, including the Japanese Yen and the Swiss Franc.

Strong fundamentals nevertheless continue to underpin the US Dollar in the broader picture and are likely to constrain further declines. Attention later in the day will turn to the US ADP Employment Change Report, with forecasts pointing to a modest easing in employment growth in October. The ISM Services Purchasing Managers’ Index (PMI), meanwhile, is expected to register readings consistent with robust business activity.

Uncertainty also continues to surround the Middle East conflict, keeping Brent Oil well above $100 despite continuing attempts to restart negotiations. Hours before the elections, the US struck Iranian targets, and Trump has left open the prospect of additional attacks. Fears of a full-scale war would be likely to drive Oil prices higher and re-establish the US Dollar’s safe-haven status.