United States Dollar Index stays near 102.00 as US midterm elections approach

• Following covert US military strikes on Iran's Qeshm Island, safe-haven demand lends support to the US Dollar.
• With prediction markets favouring Democratic gains in the Senate, traders assess uncertainty over the midterm elections.
• December Fed rate hike odds remain near 73% as elevated energy prices keep inflation worries in focus.

At around 101.80 in Tuesday's Asian session, the US Dollar Index (DXY) is steady following modest losses the previous day. The index tracks the US Dollar (USD) against six major currencies.

Prediction markets put the probability of the Democratic Party taking control of the US Senate at 74%, underscoring the high political stakes of the vote. Against this backdrop, caution ahead of the US midterm elections is helping the US Dollar hold its ground. Elevated energy prices associated with the continuing conflicts with Iran have increased political pressure on US President Donald Trump and the Republican Party.

Due later this week, the US jobs report is another focus for market participants beyond the election. The figures are expected to provide a fresh assessment of labour market conditions and inform expectations for subsequent monetary policy decisions. With the Federal Reserve retaining its hawkish stance, the CME FedWatch Tool puts the probability of a December rate increase at roughly 73%, following a pause in October.

Heightened military hostilities are also underpinning the Greenback through demand for safe-haven assets. Citing US officials, the Wall Street Journal reported that the United States attacked Iran’s Qeshm Island on Monday. This was the latest of several covert, limited strikes conducted by Washington in recent weeks. The military action came shortly after President Trump played down the prospect of a full-scale resumption of war with Iran after Tuesday's elections.

Dollar eases as patient Fed stance and AI growth worries pressure yields

Last week's loss of momentum in the Dollar and short-term US rates reflected a patient message from the Fed and concerns over AI investment, according to strategists at Brown Brothers Harriman. They note that “USD and short-term Treasury yields drifted lower” after Fed Chair Kevin Warsh “struck a patient tone despite stalled progress on US inflation.” The strategists add that “concerns about an AI investment slowdown compounded the move, casting doubt on the US growth outlook and dampening Fed rate hike expectations,” leaving both the currency and front-end yields with a softer bias.

Dollar traders await October payrolls to gauge stabilising labour demand

Friday’s October nonfarm payrolls report will provide a key test of US labour market conditions, according to Brown Brothers Harriman’s Elias Haddad. He notes that consensus forecasts point to a “+65k rise in payrolls vs. +29k in September, consistent with stabilizing labor demand.” The backdrop remains modestly softer than the Fed’s longer-term assessment: BBH notes that the “unemployment rate is expected to hold at 4.2%, a tick higher than the FOMC 2026 projection of 4.1%,” while wage trends will also attract scrutiny. With “average hourly earnings… forecast to rise 0.3% m/m vs. 0.1% in September, and ease at an annual pace of 2.9% y/y vs. 3.0% in September,” underlying pay pressures appear set to moderate further even as monthly wage growth strengthens.