Will the Dollar Regain Recent Losses?

In early European trade on Wednesday, the US dollar increased somewhat, regaining ground lost overnight amid uncertainty surrounding the US midterm elections and ahead of crucial inflation data later this week.

The dollar Index measures the dollar’s value against a basket of six other currencies. It was down around 1% this week at 02:50 ET (07:50 GMT) but was trading 0.1% higher at 109.625 then. The outcome of the midterm elections in the United States is still up in the air, with the Republicans moving closer to seizing control of the House of Representatives. However, several of the most contested contests are still in the air, making the Senate battle appear too close to call.

Here Is What Experts Have to Say

According to HSBC analysts, a Republican victory in one of the US houses and the ensuing impasse may pose a barrier to future fiscal stimulus and increase the potential of disputes over government funding deadlines and the US debt ceiling.  However, these are problems for 2023. If any election results are vigorously contested, markets may be concerned about whether the 2024 [Presidential] election results will be upheld.

The critical US consumer inflation statistics due out on Thursday are also approaching. The annual CPI number will decline to 8.0% in October from 8.2% the previous month, while the core figure, which includes volatile food and energy costs, will decrease to 6.5% from 6.6%. Recent anticipation that the Federal Reserve would soon slow down from its aggressive rising cycle, possibly as early as December, has put negative pressure on the dollar. However, an unexpectedly high inflation rate might alter that perception and support the growth of the US dollar.

With the European Central Bank scheduled to have a non-policy-making meeting later in the day, the EUR/USD slipped 0.1% to 1.0068. Following a 75 basis point increase in interest rates late last month despite weak Eurozone economic growth, ECB officials have made it apparent that further rate increases are imminent.