FX Daily: Dollar holds gains into midterms
Heading into US midterms, the dollar is bolstered by strong economic indicators, despite political uncertainties. Recent growth figures indicate a robust 3.4% annualized increase, keeping the Fed's hawkish outlook intact as it prepares for further rate hikes. Per the full note from ing-think, the markets are focused on the midterm elections, with a 70% chance for a Democratic sweep potentially leading to political gridlock which could shift risk sentiment. As the midterms draw near, key U.S. jobs data and business surveys will provide further context on the dollar's strength.
What the desk is arguing
The desk argues that the dollar will maintain its strength as robust economic growth and labor data support a hawkish Federal Reserve stance. Recent statistics show a 3.4% quarter-on-quarter annualized growth in the U.S. economy, alongside persistent inflation pressures. Per the full note from ing-think, uncertainty surrounding the midterm elections may not detract significantly from the dollar's performance given these strong fundamentals.
Nonetheless, if the Democrats take both the House and Senate as predicted by betting markets, this could lead to gridlock concerning fiscal policy, which may introduce volatility in the dollar’s performance post-elections.
Where it sits in our coverage
Currently, our consensus target for EUR/USD sits at 1.15, with a range from 1.1162 to 1.2000 among various firms. Noteworthy targets include HSBC at 1.1000 and RBC at 1.2000 for Dec26.
This view aligns with the broader cross-firm consensus which suggests a diverse range of expectations but remains inherently cautious given potential political developments affecting market sentiment.
How other firms see it
Firms projecting a stronger outlook for the dollar include Mizuho and Commerzbank, while Investec and Rabobank predict more tempered gains for the euro. This divergence speaks to the broader unpredictability surrounding the impact of upcoming U.S. data on FX valuations.
Given the upcoming focus on U.S. jobs data and ISM business surveys, traders should keep a close eye on cash flows in EUR/USD as they may reflect shifts arising from Fed policies and political uncertainties.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01The dollar maintained its strength ahead of U.S. midterms.
- 02A strong U.S. economic growth of 3.4% supports a hawkish Fed stance.
- 03Market sentiment could shift based on the outcome of the midterms.
- 04Key U.S. jobs data and ISM business surveys are forthcoming.
Market implications
Watch for the USD to respond to employment data due later this week. A strong print for jobs could reinforce dollar strength, especially if sentiment remains bullish amid midterm uncertainties. Levels around 1.1253 in EUR/USD may see volatility.
Risks to this view
A Democratic sweep could introduce political gridlock, leading to a reversal in dollar strength if it hampers fiscal responsiveness. Any unexpected shifts in economic data or geopolitical developments could ultimately sway market sentiment.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UBS | Bullish | 1.1600 |
UOB | Bearish | 1.1140 |
MUFG | Neutral | 1.1200 |
Articles FX Daily: Dollar holds gains into midterms Published 07:51 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download At the start of a very busy week for FX markets, the dollar is largely holding onto recent gains. In focus are the US midterms, where betting markets attach a 70% probability to a clean sweep for the Democrats. Away from politics, we'll receive updates on the US jobs market this week and are expecting rate hikes in the UK, Australia and Sweden Chris Turner , Frantisek Taborsky and Francesco Pesole The US midterm elections are set to dominate a busy week in FX.
A clean sweep for the Democrats is expected, but the macro story can keep the dollar supported USD: Contemplating the midterms The dollar is fractionally lower at the start of the week. It may be taking its cue from oil prices, which are off 2-3% on reports that US President Donald Trump wants to let diplomacy run its course with Iran. That reverses Friday's sentiment, where some had positioned for a fresh attack this weekend.
Please see our latest thoughts on the oil market here . In focus this week are the US midterm elections. Betting websites give the Democrats a 70-72% chance of taking both the House and the Senate.
One could make the case that the dollar should come lower on such an outcome, since it would likely lead to gridlock on the debt ceiling , a prolonged government shutdown next year and could encourage President Trump to pursue an even more activist foreign policy agenda. Many of those views are speculative, however. What is not speculative is the US economy posting a strong 3.4% quarter-on-quarter annualised growth rate in the third quarter, inflation remaining above target for a sixth year in a row, and the Federal Reserve readying to tighten again.
Feeding into the US macro debate this week will be ISM business surveys and jobs data. Business surveys are expected to show continued optimism, along with high price pressures. And Friday's October jobs report is expected to show a modest rebound after a soft September figure.
Barring a wholly disastrous report on Friday, we doubt the jobs data really moves the needle on the Fed tightening story. Price data is more important here. There will be continued focus on the tech sell-off, however.
Apple reports after the market close today. The 9% Nasdaq sell-off last month has driven a softening in short-dated US rates, and any further large sell-off in this sector is probably the biggest risk to long dollar positioning. Expect DXY to continue trading around 102.00, and we do not see a strong case for a correction lower.
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