SINGAPORE (Reuters) – The dollar weakened versus the euro and sterling as traders reacted to the Democratic Party winning control of the U.S. House of Representatives, empowering it to block President Donald Trump’s agenda and scrutinise his administration.
Analysts say a split Congress may temporarily hurt the dollar because the Democratic Party’s capture of the House of Representatives is likely to be seen as a repudiation of President Donald Trump and policies that have boosted corporate growth.
“If Congress is split, with the Democrats controlling the House and Republicans the Senate, the prospect of legislative gridlock that would make it difficult for policies such as the President’s middle-class tax cut to pass is negative for the U.S. dollar,” Kathy Lien, managing director of currency strategy at BK Asset Management said in a note.
The dollar index, a gauge of its value versus six major peers, lost 0.28 percent to trade at 96.04.
The greenback has outperformed most of its key rivals this year, benefiting from a robust domestic economy and higher interest rates.
“Overall, it is too early to believe that the US dollar has reversed its uptrend. The Fed is likely to be encouraged by last Friday’s jobs data that US wage growth has finally picked up,” DBS Currency Strategist Philip Wee said in a note.
“The Fed is likely to reaffirm, at its FOMC meeting on November 8, its intention to lift its policy rate above 3 percent over the next year.”
The mid-term election result is seen as unlikely to have a material impact on the U.S.-Sino trade dispute, and the dollar can be expected get a safe-haven bid if trade tensions between Washington and Beijing intensify.
The euro gained 0.15 percent to trade at $1.1443 versus the dollar, off its intraday high of $1.1473. The single currency changed hands about 1.1 percent above this year’s trough of $1.1301 reached on Aug. 15.
The dollar lost 0.19 percent against the yen, to trade at 113.21. Earlier in the session, the yen had strengthened to 112.95.
The Australian dollar traded flat at $0.7245.
The pound was 0.13 percent higher versus the dollar at $1.3116, sitting slightly below a three-week high of $1.3142.
Sterling slipped as low as $1.3023 on Tuesday before erasing its losses in volatile trade on growing hopes of a breakthrough Brexit deal.