Forex Today: US Dollar under pressure as Democrats take control of Congress

Here is what you need to know on Wednesday, November 4:

The US Dollar (USD) weakens against its major rivals early Wednesday as markets assess the outcome of midterm elections. The European economic calendar will feature preliminary October inflation data from the Eurozone. Later in the day, ADP Employment Change and the Institute for Supply Management's Services Purchasing Managers' Index (PMI) data from the United States (US) will be watched closely by market participants.

US Dollar Price Today

The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Swiss Franc.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.30%	-0.34%	-0.36%	-0.26%	-0.35%	0.03%	-0.40%
EUR	0.30%		-0.04%	-0.07%	0.02%	-0.07%	0.31%	-0.10%
GBP	0.34%	0.04%		-0.02%	0.09%	-0.01%	0.36%	-0.06%
JPY	0.36%	0.07%	0.02%		0.12%	0.02%	0.38%	-0.03%
CAD	0.26%	-0.02%	-0.09%	-0.12%		-0.10%	0.26%	-0.15%
AUD	0.35%	0.07%	0.00%	-0.02%	0.10%		0.36%	-0.05%
NZD	-0.03%	-0.31%	-0.36%	-0.38%	-0.26%	-0.36%		-0.40%
CHF	0.40%	0.10%	0.06%	0.03%	0.15%	0.05%	0.40%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

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The Democrats won the Senate and the House in midterm elections to take control of the US Congress in the last two years of Donald Trump's presidancy. Trump acknowledged that the Iran war is "partly to blame" for Republicans' defeat and said that he has no plans to make personnel changes inside his administration, as per the Wall Street Journal. With the first reaction to the election results, US stock index futures trade mixed, the USD Index stays in negative territory near 101.50 and the benchmark 10-year US Treasury bond yield stays on the back foot below 4.95%.

Dollar enthusiasm fades as US equities and Nasdaq face renewed pressure

Analysts at Commerzbank warn that “US equities, and the more tech-heavy Nasdaq in particular, are likely to come under pressure today,” noting that the Dollar’s recent strength has “benefited substantially in recent months from the enthusiasm surrounding US equities and the resulting capital inflows.” They caution that, as that equity-driven support ebbs, “Dollar weakness could therefore become somewhat more entrenched over the coming hours.”

Looking beyond the immediate market reaction, Commerzbank adds that “if political debate in the United States were to shift back toward a more constructive direction, admittedly a very big if, this could reduce the political risk premium embedded in the US Dollar and provide the currency with structural support over the longer term.”

Gold benefits from the broad USD weakness and gathers bullish momentum on Wednesday, rising more than 2% to trade above $4,000.

In the early trading hours of the Asian session, the data from New Zealand showed that the Unemployment Rate rose to 5.7% in the third quarter from 5.6%. This print came in worse tha the market expectation of 5.5%. Despite the disappointing labor market data, NZD/USD gathers bullish momentum on Wednesday and trades slightly above 0.5600, up about 0.4% on the day.

EUR/USD climbed to a fresh two-week high above 1.1250 earlier in the day but retreated toward 1.1230 to erase a portion of its daily gains. On a yearly basis, the Harmonized Index of Consumer Prices (HICP) is expected to rise 4% following the 3.8% increase recorded in September.

GBP/USD extends its winning streak into a sixth consecutive day on Wednesday and trades at its highest level sinde mid-September above 1.3450. The Bank of England (BoE) is forecast announce a 25 basis points rate hike on Thursday.

USD/JPY declined sharply during the Asian trading hours on Wednesday but managed to stage a rebound later. At the time of press, the pair was trading slightly above 158.00, still down about 0.4% on the day.

US Dollar FAQs

What is the US Dollar?

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

How do the decisions of the Federal Reserve impact the US Dollar?

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

What is Quantitative Easing and how does it influence the US Dollar?

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

What is Quantitative Tightening and how does it influence the US Dollar?

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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