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

A recovery from session lows has left the US Dollar Index below 102.00, still trading within its earlier ranges.
Gains in the Greenback remain constrained by US political uncertainty, despite support from hostilities in Iran and rising oil prices.
A Democratic sweep might weigh on the USD in the short term, according to ING experts.

Modest gains against most major peers mark the US Dollar's trading on Tuesday, though uncertainty surrounding the US midterm elections has so far restrained rallies. Renewed hostilities in Iran have raised doubts about the peace process and pushed oil prices higher. Having recovered from session lows around 101.50, the US Dollar Index (DXY) continues to face a ceiling below the 102.00-102.10 zone, which also halted advances on Monday and Friday.

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Concerns that hostilities in Iran could resume are offering the Greenback some support. Those concerns have grown after the US military struck targets on Iran's Qeshm Island in the Strait of Hormuz, an operation US authorities described as “defensive”.

Why does Trump remain optimistic about an Iran peace deal?

Diplomatic efforts to bring both sides back to negotiations continue, with some backing from the US. Playing down the prospect of an all-out war, US President Donald Trump said a peace agreement with Iran “could happen,” adding that, in his view, Tehran "wants a settlement, as soon as possible."

Stronger-than-forecast factory activity and elevated price pressures featured in the US ISM Manufacturing Purchasing Managers' Index (PMI) data published on Monday. The figures suggest that the US economy began the fourth quarter on a firm footing.

With investors waiting for the US midterm election results before making investment decisions, however, the data offered little meaningful support to the US Dollar. ING strategists say they “don’t expect today’s US midterm results to cause structural shifts in FX.” Even so, the bank's analysts flag possible “short-term pressure” on the Dollar if Democrats win both the House, an outcome that is “widely expected,” and the Senate, where the contest is a “close call.”

US midterm elections: key questions answered

What do voters decide in the US midterm elections?

Held midway through a president's four-year term, the US midterm elections are federal polls in which voters elect all 435 members of the House of Representatives and about one-third of the Senate. In many states, voters also choose 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 already have early voting and postal voting under way.

What is at stake in the US midterm elections?

Control of each chamber of Congress during the final two years of President Donald Trump's term will be determined by these elections. Setting the legislative agenda and selecting committee leaders are powers held by the majority party; in the Senate, that party also controls the confirmation of judges and senior officials.

Will voters elect a president in the 2026 midterms?

No. Presidential elections take place every four years, with the next scheduled for November 2028. Often viewed as a referendum 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 move in the US Dollar, rather than a sustained trend, is what most analysts anticipate. Markets have partly priced in a divided Congress, which is widely regarded as the base case. The response in Treasury yields may be more pronounced. Results that strengthen expectations of fiscal stimulus typically push both yields and the US Dollar higher; by contrast, political gridlock 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. Over a six-to-twelve-month horizon, economic growth and Federal Reserve policy carry more weight than the election outcome.

What is the usual pattern for stocks around midterm elections?

Historically, weakness in US equities ahead of midterms has given way to strength after the elections. Looking back to 1950, the S&P 500 has recorded gains 12 months after every midterm election: 19 out of 19 occasions, averaging about 15%. Analysts attribute this pattern to the reduction in uncertainty once the results become clear. Past performance does not guarantee future returns, and some strategists note that high valuations in 2026 could test the streak.

Why might markets favour a divided Congress?

A divided government has often found favour with markets, as legislative gridlock reduces the likelihood of sweeping changes to taxation, spending and regulation. 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 remain risks that can increase short-term volatility.