US Dollar Index ticks higher within range as midterm elections take centre stage

• Below 102.00, the US Dollar Index is recovering from its session lows while trading within its earlier ranges.
• Hostilities in Iran and rising oil prices are underpinning the Greenback, although uncertainty over US politics is restraining its advance.
• A Democratic sweep could weigh on the USD in the short term, according to ING experts.

From session lows around 101.50, the US Dollar Index (DXY) has recovered but remains below the 102.00-102.10 area that limited advances on Monday and Friday. The US Dollar is modestly firmer against most major peers on Tuesday, as renewed hostilities in Iran raise doubts about the peace process and push oil prices higher. However, uncertainty surrounding the US midterm elections has so far constrained gains.

Growing fears that hostilities in Iran will resume are lending the Greenback some support. Those concerns follow US military strikes on targets on Iran’s Qeshm Island in the Strait of Hormuz, which US authorities described as a “defensive” operation.

Trump maintains optimism over an Iran peace agreement

Diplomatic efforts to return both sides to the negotiating table are continuing, with some backing from the US. Playing down the prospect of all-out war, US President Donald Trump said a peace agreement with Iran “could happen,” adding that he believed Tehran "wants a settlement, as soon as possible."

Monday’s US ISM Manufacturing Purchasing Managers’ Index (PMI) figures indicated that factory activity was stronger than expected, while price pressures remained elevated. The readings suggest that the US economy began the fourth quarter on a firm footing.

Despite that strength, the figures offered little meaningful support to the US Dollar, with investors waiting for the US midterm election results before making investment decisions. ING strategists say they “don’t expect today’s US midterm results to cause structural shifts in FX.” Nevertheless, the bank’s analysts warn of possible “short-term pressure” on the Dollar should the Democrats win both the House, an outcome that is “widely expected,” and the Senate, where the contest is a “close call.”