US Dollar: How are lower yields weighing on USD after Democratic sweep? – Danske Bank

Broad USD came under pressure as US bond yields fell following the Democratic sweep in the US midterms and a sharp decline in energy prices, according to the Danske Research Team. Stronger job gains and accelerating wage growth in the ADP report also offered modestly hawkish labour market signals, the team notes, which could reinforce the Federal Reserve’s cautious stance.

Why is broad USD weakening as yields and energy prices decline?

"Bond yields declined, while broad USD and NOK weakened following both the stronger-than-expected Democratic sweep in US midterms, and the sharp drop in energy prices."

"Also in the US, the ADP private-sector employment report showed an increase of 86k jobs in October, above the consensus of 69k. The report adds to a run of labour market indicators pointing towards continued solid growth in labour demand ahead of Friday's payrolls data."

"An uptick in job-changer wage growth to its highest since March 2024 suggests labour market conditions are tightening and workers' bargaining power is improving, sending a modestly hawkish signal for the Fed."

"On the wires, we will hear from the Fed's Hammack (voter in 2026, non-voter in 2027), Logan (voter in 2026, non-voter in 2027) and Barkin (non-voter in 2026, voter in 2027). Hammack and Logan have been among the most hawkish FOMC participants, both dissenting from the July decision to leave rates unchanged, with Hammack also dissenting in October. As Barkin will vote next year, it will be interesting to hear whether he signals his view on the October rate decision."

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