Dollar falls while gold and US Treasury bonds rally as markets react to Democrats’ midterm election victory – business live
The US dollar hit a one-month low and gold surged to $4,022 an ounce after the Democrats won control of Congress, routing Republicans in historic midterm elections.
The Democrats secured control of both the House of Representatives and the Senate, delivering a historic victory that has reshaped the US political landscape and sent shockwaves through financial markets.
Donald Trump’s party suffered a rout, with the opposition party gaining powerful new leverage to influence the remainder of his presidency.
The result has triggered a sharp re-evaluation of political risks, with the dollar plunging to a one-month low and safe-haven assets rallying.
Dollar falls as investors seek safety
The US dollar index dropped 0.6% against a basket of major currencies, with the decline most pronounced against the Japanese yen and the Swiss franc.
Investors are reassessing the political outlook, with a divided government raising questions about the ability to pass fiscal stimulus.
There’s been a rally for US Treasuries as well, given that divided government has generally made it harder for fiscal stimulus to be passed. So that’s eased concerns on the fiscal trajectory a bit.
The prospect of a more contentious legislative environment has also pushed the dollar index down, as markets price in a more dovish path for the Federal Reserve.
Gold and bonds rally on divided government
Gold prices surged 2.4%, climbing to $4,022 an ounce, supported by the weaker dollar and increased demand for safe-haven assets.
US Treasury bonds rallied as fears around the fiscal outlook eased, with the two-year yield falling 3.5 basis points to 4.598% and the 10-year yield dropping 2 basis points to 4.929%.
The rally in bonds reflects investor relief that a divided government may constrain aggressive fiscal stimulus, easing long-term debt concerns.
Midterms rattle Trump, send dollar lower and bullion higher: The heavy Republican defeat is a stark reminder that even a president who dominates the political conversation is not immune to voter discontent.
AI regulation and market outlook
The Democratic victory has increased expectations for tougher regulation of the AI sector, with analysts warning of potential delays to the rollout of new technologies.
While the immediate policy impact may be limited due to the lack of a filibuster-proof majority in the Senate and Trump’s veto power, the long-term outlook for legislative changes has brightened.
The magnitude of the gains for the Democrats in the midterms does not change too much for the near-term policy outlook, given the party still lacks a filibuster-proof majority in the Senate and President Trump has veto power to block legislation.
The market reaction suggests that investors are becoming less comfortable with the political risks surrounding the White House, even as a divided government may ultimately prove manageable.
Asian markets react
Asian markets showed mixed results following the US election outcome, with Japan’s Nikkei losing 1.4% and Hong Kong’s Hang Seng rising 1.3%.
South Korea’s Kospi gained 0.4%, reflecting a more cautious approach to the political developments in the United States.
What happens next
Investors will now closely watch the White House for signs of how Trump intends to navigate a divided Congress.
The next key events include the release of US ADP employment data for October and the ISM Services index, which will provide further insight into the economic outlook.
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