FX Daily: Dollar holds gains into midterms

The dollar should remain supported into the US midterm elections because resilient US growth, persistent inflation and expected Federal Reserve tightening outweigh political uncertainty.

• Betting markets assign Democrats a 70–72% probability of winning both the House and the Senate, but the implications for the dollar through debt-ceiling gridlock, a government shutdown and foreign policy are considered speculative.
• US GDP grew at a 3.4% annualised quarter-on-quarter rate in the third quarter, inflation remains above target for a sixth consecutive year, and the Fed is preparing to tighten again; ISM surveys and October payrolls are therefore less important than price data.
• The 9% Nasdaq sell-off in the previous month lowered short-dated US rates, while a further technology sell-off after Apple's results is identified as the main risk to long-dollar positions; DXY is expected to remain around 102.00.
• Fitch moved France's sovereign-debt outlook from stable to negative while maintaining an A+ rating, limiting the scope for a EUR/USD rebound and leaving sellers likely around 1.1200–1.1250.
• Sterling is supported by expectations of a 25bp Bank of England hike to 4.00%, while CEE currencies face pressure from higher energy prices, a stronger dollar and dovish regional central banks; Turkey's October inflation is forecast at 29.6% year on year and Poland is not expected to hike before the first quarter of 2027.

Takeaway: Maintain a constructive dollar bias, expect sterling to outperform while UK rate expectations stay firm, and remain cautious on the euro and CEE currencies; the main risk to this view is a renewed large technology-sector sell-off.