US Dollar Weakens After Midterm Elections | GBP, EUR & USD Currency Market Outlook

Key Highlight

• The US dollar weakened slightly after Democrats secured control of both the House and Senate in the midterm elections.
• A divided Congress is expected to restrict President Trump’s ability to introduce further spending measures, potentially easing concerns over the US budget deficit.
• Despite the political shift, the dollar’s decline remained limited as markets had largely anticipated the result. Economic data and Federal Reserve policy remain the bigger influences.
• Sterling is supported by expectations of a 0.25 percentage point (25bp) Bank of England interest rate rise on Thursday, although the extent of future tightening remains uncertain.
• EUR/USD edged higher following the election result, but European energy costs and political uncertainty continue to weigh on the euro.
• Attention now turns to Euro Area inflation figures and Friday’s US October employment report, which could influence expectations for future interest rate decisions.

Market Recap

The US midterm elections delivered a strong result for the Democrats, who regained control of both the House of Representatives and the Senate. The outcome reflects growing voter dissatisfaction with the cost of living, trade tariffs and the conflict involving Iran.

The dollar moved lower following the result, although the reaction was relatively modest as markets had largely priced in a Democratic victory. Investors believe a divided Congress could limit President Trump’s ability to pursue further fiscal expansion, potentially reducing concerns about government borrowing and easing pressure on US Treasury yields.

However, the election result is not expected to fundamentally change the dollar’s direction. Economic performance, inflation and Federal Reserve policy are likely to remain more influential.

Meanwhile, Sterling remains supported by expectations of a Bank of England interest rate increase this week. The euro made modest gains against the dollar but continues to face pressure from elevated energy prices and political uncertainty in France.

Market Overview

USD – Dollar faces mild pressure following election result

The Democratic victory is viewed as slightly negative for the US dollar, as greater political opposition could restrict further government spending and help ease concerns about the budget deficit.

Lower Treasury yields could reduce the dollar’s interest rate advantage over other currencies, while calmer bond markets may also reduce demand for the dollar as a safe-haven asset.

However, the impact is expected to be limited. President Trump retains veto powers, meaning Congress cannot easily reverse existing policies. Furthermore, the ongoing conflict involving Iran, resilient US economic activity and elevated inflation expectations are likely to keep bond yields supported.

Investors are therefore expected to shift their attention back towards economic fundamentals, particularly Friday’s US non-farm payrolls report for October, which could provide important clues about the strength of the labour market and the Federal Reserve’s next steps.

GBP – Sterling supported by expectations of a Bank of England rate rise

Sterling is entering Thursday’s Bank of England meeting on relatively firm footing, with markets anticipating a 0.25 percentage point interest rate increase. This would be the first rate rise since August 2023.

Inflation has remained higher than the Bank’s forecasts, economic activity has been more resilient than expected and the labour market is showing early signs of stabilisation.

Analysts expect the decision to be relatively divided, with a potential 7-2 vote in favour of raising rates. However, the Bank may avoid committing further increases, particularly given the fragile employment market and limited evidence of wider inflationary pressures.

Markets are currently pricing in four additional rate rises over the next 12 months, alongside three further increases during 2027. This may prove overly optimistic.

A less supportive voting split or indications that future increases are unlikely could put downward pressure on sterling. Conversely, a stronger consensus in favour of higher rates and more hawkish comments from policymakers could provide further support for the pound.

EUR – Political and energy concerns continue to weigh on the euro

EUR/USD edged higher during Asian trading as the Democratic election victory became clearer. However, the move was modest, with the wider outlook for the euro still influenced by European economic and political developments.

Higher energy prices, uncertainty surrounding the conflict involving Iran and ongoing French budget difficulties continue to create challenges for the single currency.

Attention now turns to preliminary October Euro Area inflation figures, which should provide further insight into underlying price pressures. Investors will also be watching comments from ECB President Christine Lagarde on Thursday, particularly for indications of whether inflation could become more persistent and require further interest rate increases in 2027.

September retail sales figures and comments from ECB Chief Economist Philip Lane on Friday will provide additional insight into the region’s economic outlook.

04th November 2026

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