Sterling today: Pound gains as dollar slips on Democratic midterm sweep

Sterling traded higher on Wednesday while the euro also rose, as the dollar weakened after Democrats swept both chambers of Congress in the U.S. midterm elections.

Sterling rose 0.60% against the dollar to $1.3495, while the euro gained 0.63% to $1.1262, as of 05:25 ET (10:25 GMT).

Democrats flipped seven Senate seats, including South Carolina, Maine and Texas. They secured at least 232 House seats and 54 in the Senate.

The dollar’s drop looks tentative. "Overnight price action could provide a preview for markets in 2027," said Chris Turner, global head of markets at ING, noting that the new Congress does not take office until January.

He said a Democratic Congress would be "a mild dollar negative," given implications for AI spending and the risk of a prolonged government shutdown from next summer.

"We would not chase the dollar lower today for what, after all, could be a 2027 story," he said. He added that the dollar index’s overnight low of 101.25 "looks to be an important support level which may hold into tomorrow’s October jobs report."

Turner described the backdrop as "a strong US economy and a Fed ready to tighten further," a hawkish reading. No Federal Reserve speakers were cited in the material reviewed.

Catalysts today include ADP employment, October ISM services and the Treasury’s quarterly refunding announcement. Official jobs data is due Friday. Turner said any bond market upset "would hit USD/CHF as it did in August."

For the euro, Turner said EUR/USD is “correcting off an overnight spike to 1.1260” and that “we do see the 1.1260/70 area being the top of a near-term trading range.” He said it will likely take cues from tech stocks, where renewed pressure “could drag it higher.”

Eurozone inflation accelerated to 4% in October from 3.8% in September as energy costs rose 20.8% from a year earlier, preliminary Eurostat data showed on Wednesday, in line with forecasts.

Core inflation held at 2.5%, also as expected, with services up 3.3%. Turner had said “any upside surprise in core should be euro bullish,” as markets would price in more than “insurance rate hikes” from the European Central Bank. The in-line print offered no such surprise.

Turner’s stated view is that the dollar "looks likely to be traded through the macro/monetary lens, which remains supportive." That would shift if the DXY broke below 101.25, if core eurozone CPI surprised higher, or if tech weakness resumed.