Asian FX gains as dollar falls on U.S. midterm results, yuan weakens on PBOC move

The U.S. dollar slid to its lowest level in more than a month on Wednesday, logging its steepest single-day decline in over two months as early results from the U.S. midterm elections pointed to decisive Democratic gains, triggering a swift unwinding of the greenback and driving capital into sovereign Treasuries and traditional safe havens. 

The U.S. Dollar Index dropped 0.5% to 101.34, retreating from near 2026 highs reached last month. The sell-off marked a sudden reversal for the greenback, which had been supported by resilient factory data, rising bond yields, and robust labor demand, as election returns sparked an immediate risk-off rotation out of U.S. equities and the dollar.

The catalyst for the dollar’s sharp downturn was the emerging balance of power on Capitol Hill, where Democrats made sweeping gains in their campaign to wrest control of Congress from President Donald Trump’s Republicans.

Key victories, including Democrat Jon Ossoff winning re-election in Georgia and Roy Cooper flipping a Republican-held Senate seat in North Carolina, pointed toward legislative gridlock or an outright Democratic takeover. Benchmark 10-year Treasury yields fell four basis points to 4.919% as investors rushed into safe-haven paper, paring the interest-rate premium that had anchored the greenback.

Beyond the immediate fiscal friction and the prospect of contentious debt-ceiling showdowns in 2027, foreign exchange strategists noted that a Democratic-controlled Congress alters the outlook for the mega-cap technology and artificial intelligence sectors.

A Democratic majority is expected to heighten regulatory and antitrust scrutiny over Big Tech while potentially creating legislative hurdles for large-scale, state-level datacenter build-outs.

With AI-driven capital expenditure having served as a cornerstone of U.S. equity outperformance and foreign capital inflows, the political shift triggered an immediate re-evaluation of dollar-denominated growth assets.

The Swiss franc jumped to its highest level in nearly two months against the dollar, while the yen experienced a session of volatile whiplash, swinging erratically during early Asian dealing before settling largely steady to slightly firmer at 157.64 per dollar. 

Euro rebounds to three-week high

The euro capitalized on the greenback’s retreat, jumping 0.5% to $1.1251 - touching a three-week high and delivering its largest single-session gain in three weeks.

The sharp advance occurred despite underlying domestic macroeconomic data highlighting persistent growth drag across the single-currency bloc. The S&P Global Eurozone Composite PMI fell to 51.7 in October from 53.1 in September, hitting a four-month low and undershooting the preliminary estimate of 51.9.

The survey revealed that underlying economic expansion slowed sharply, with aggregate demand coming close to stalling, business confidence sinking to a five-month low, and rising input costs squeezing corporate profit margins. 

Sterling advances ahead of Bank of England decision

The British pound also advanced against the beleaguered dollar, with sterling rising 0.4% to $1.3470, its highest in over one month. 

Sterling drew support from the dollar unwind, but dealing desks refrained from chasing aggressive upside ahead of Thursday’s Bank of England policy announcement.

With UK headline and services inflation proving stubborn, money markets are heavily positioning for the Monetary Policy Committee to raise Bank Rate by 25 basis points to 4%.