US Dollar: Greenback comes under pressure from midterm risks – ING

Hawkish US data and a Federal Reserve that remains on alert continue to underpin demand for the Dollar, according to ING’s Francesco Pesole, even as renewed pressure on US technology shares has supported Treasuries and weighed modestly on the currency. For the near term, he identifies positioning ahead of the US midterm elections as a principal risk, cautioning that a possible Democratic sweep could prove mildly negative for the Dollar.

Dollar gains face restraint from election positioning

"Fresh pressure on tech stocks has triggered some safe-haven buying in US Treasuries and weighed on the dollar as the front end followed lower. Moves are contained in both equities and FX, but it’s a reminder that the greenback still faces downside risks from oscillating AI sentiment."

"At the same time, whenever tech stocks don’t dominate headlines, the dollar has had no trouble attracting buyers, and we don’t think Wednesday’s FOMC changed that. Incidentally, yesterday’s US data was hawkish-leaning, with 3Q growth slightly above consensus at 3.4% and core PCE at 0.3% month-on-month in September – enough to keep the Federal Reserve on high alert."

"To us, the main risk for the dollar today is some precautionary unwinding of net-long positions ahead of Tuesday’s US midterm elections. A Democratic sweep is trading around 68% in prediction markets, and that could be seen as slightly negative for the US dollar from a few angles, from higher risk of government shutdown and gridlock on debt ceiling negotiations to potential damage to already shaky AI-related sentiment. We’d be cautious in chasing the USD upside in the next few days."

"Meanwhile, resurgent AI-related jitters and the upcoming US midterms are increasing downside risks for the dollar, in our view, although a still-hawkish Fed argues against major corrections."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Learn more.)