Amid Trump's US midterms defeat, British Pound approaches 1.3500 against US Dollar

Fresh seven-week highs above 1.3480 follow a 0.5% rally in GBP/USD on Wednesday.
Broad-based losses hit the US Dollar as news emerged of the Democrats' win in the US midterm elections.
Support for the Pound over the past few days has come from market expectations that the BoE will raise rates on Thursday.

Gains in the British Pound (GBP) gathered pace against a weaker US Dollar (USD) on Wednesday as news emerged that the Democrats had secured both the House and the Senate in Tuesday's US midterm elections. At the time of writing, GBP/USD was up 0.5% for the day, trading at seven-week highs above 0.3480.

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Strong disapproval of President Donald Trump’s policies has been confirmed by news from the US. It has extended even to Kansas, Ohio, North Carolina and Texas, Republican strongholds governed by the party for decades.

The first results pointing to a Democratic victory immediately sent the US Dollar lower across the board. Fears that Democrats would tighten regulation of the AI sector and curb data centre expansion prompted investors to sell AI-related shares and seek safety in government bonds.

According to analysts at Rabobank, the market's initial interpretation of Democrat control of Congress was “fewer fiscal giveaways and therefore less inflation,” which, in their assessment, “suggests lower yields on treasuries which have negative implications for the USD.”

Could Thursday's BoE rate hike leave the Pound vulnerable?

By contrast, modest buying interest has supported the Pound over the past few days. Markets are hoping that Thursday's monetary policy meeting will see the Bank of England (BoE) raise its Bank rate by a quarter-point to 4.0%.

The outlook beyond that decision remains less certain. Recent remarks from BoE policymakers indicate divisions within the monetary policy committee over further tightening, while Government Bailey has tended to downplay inflationary pressures. If Thursday's hike comes with a dovish message, Pound bulls could be tempted to book profits, potentially triggering a substantial pullback.

US midterm elections: key questions answered

What do voters elect in the US midterms?

Held at the midpoint of a president's four-year term, US midterm elections are federal polls in which voters elect all 435 House of Representatives members and about one-third of the Senate. Many states also elect governors and other state and local officials.

On which date will the 2026 midterm elections take place?

Voters go to the polls on Tuesday, 3 November 2026. Under federal law, Election Day falls on the Tuesday following November's first Monday. Many states have already begun early and postal voting.

What makes the US midterm elections significant?

Control of both chambers of Congress during the final two years of President Donald Trump's term will be determined by these elections. The party holding a majority decides the legislative programme and appoints committee leaders. In the Senate, it also controls confirmations of judges and senior officials.

Will voters choose a president in the 2026 midterms?

No. Presidential elections take place at four-year intervals, with the next scheduled for November 2028. Often viewed as a verdict on the incumbent president's party, midterms have historically tended to cost that party seats in the House.

What could the 2026 midterm results mean for the US dollar?

A limited, temporary response from the US Dollar, rather than a sustained trend, is what most analysts anticipate. Markets broadly regard a divided Congress as the most likely outcome and have already priced it in to some extent. The response in Treasury yields may be more pronounced. Results that strengthen expectations of fiscal stimulus generally push both yields and the US Dollar higher; a legislative impasse that constrains fresh spending can weigh on both. Disputes over funding or the debt ceiling can also give the Dollar a brief safe-haven boost. Across six to twelve months, however, economic growth and Federal Reserve policy carry more weight than the election result.

What is the usual stock market pattern around midterms?

Historically, weakness in US equities ahead of midterm elections has given way to strength afterwards. Since 1950, the S&P 500 has recorded gains in the 12 months following every midterm, a record of 19 out of 19, averaging about 15%. Analysts attribute this pattern to the easing of uncertainty after results emerge. Past performance does not guarantee future returns, and some strategists note that high valuations in 2026 could test the streak.

Can markets benefit from a divided Congress?

A divided government has often found favour with markets, as legislative gridlock reduces the likelihood of far-reaching tax, spending and regulatory changes. With a Republican president in office, the S&P 500 has historically performed well in the years after midterms that divided control of Congress. Funding deadlines, debt-ceiling disputes and congressional investigations nevertheless pose risks that can increase near-term volatility.