US Dollar Index (DXY) retests four-week lows, hammered by US midterm results

The US Dollar Index dives 0.6% on Wednesday and extends losses to four-week lows at 101.25.
The landslide victory of the Democratic Party has sent the US Dollar tumbling on Wednesday.
Concerns about AI regulation have pushed investors awau¡y from equities to the safety of US Government Bonds, weighing on yields and the USD.

The US Dollar (USD) is showing the weakest performance among the major currencies on Thursday, hammered by the US President Donald Trump’s defeat in the midterm election. The US Dollar Index (DXY), which measures the value of the USD against six majors, is trading 0.6% lower on the day, with bears launching a fresh attack to the 101.25 support area at the time of writing.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The Democrats have taken control of the US Congress and also the more disputed Senate in Tuesday's elections, which delivered a historic defeat to the Republican Party, which has lost historical strongholds like Texas, Kansas and North Carolina where the Republicans had held the government for decades.

Tech shares came under pressure following the elections’ outcome. Concerns that the Democrats will push for tougher regulation in the AI sector and stop most of the plans to build data centers provided a fresh blow to tech shares during the Asian session and boosted demand for the safe-haven government bonds. The yield of the 10-year note dropped a maximum of 10 pips following the election results, adding bearish pressure on the USD.

ING: Overnight price action provides a preview for markets in 2027

ING’s Chris Turner observes that the fact that the Democrats do not take office until January might have calmed investors and kept the US Dollar from falling further, but warns that “overnight price action could provide a preview for markets in 2027," as, in his opinion, "A Democratic Congress would be a mild dollar negative – both in terms of what it would mean for the AI story and the prospect of a prolonged US government shutdown."

Bearing this in Mind, the ING Analysis Team sees US Dollar bears contained amid “a still-resilient US economy and at least one more rate hike from the Federal Reserve.”

In that sense, the US ADP Employment Change and the ISM Services Purchasing Managers' Index (PMI) will gather particular interest later in the day. The highlight of the week, however, will be Friday's Nonfarm Payrolls (NFP) report, due on Friday. Anything different from a strong labour market report next Friday might increase doubts about the US economic outlook and add pressure on the USD.

Economic Indicator

ADP Employment Change

The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.

Economic Indicator

ISM Services PMI

The Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US services sector, which makes up most of the economy. The indicator is obtained from a survey of supply executives across the US based on information they have collected within their respective organizations. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates that the services economy is generally expanding, a bullish sign for the US Dollar (USD). A reading below 50 signals that services sector activity is generally declining, which is seen as bearish for USD.

Why it matters to traders?

The Institute for Supply Management’s (ISM) Services Purchasing Managers Index (PMI) reveals the current conditions in the US service sector, which has historically been a large GDP contributor. A print above 50 shows expansion in the service sector’s economic activity. Stronger-than-expected readings usually help the USD gather strength against its rivals. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are also watched closely by investors as they provide useful insights regarding the state of the labour market and inflation.