The US dollar dropped to its weakest level in a month on Wednesday after Democrats won control of both the Senate and the House of Representatives in the midterm elections, according to The Guardian. The dollar index, which tracks the currency against six major peers, fell as bond yields declined and investors shifted money into US government debt. The pound, euro, yen and Swiss franc all gained ground against the dollar.
The Guardian reports that the election result has raised concern among investors that tougher oversight of artificial intelligence could weigh on economic growth. Voters delivered wins for Democrats in Senate races in states that have traditionally backed Republicans, including Texas, Iowa, North Carolina and South Carolina.
Why it matters
The result hands Democrats control of Congress for the remainder of Donald Trump's final term, a shift that changes how much of the president's agenda can pass through the legislature. Markets are now pricing in two competing forces: political gridlock that limits new policy changes, and the possibility of new rules for the AI sector, which has been a major driver of US economic and stock market performance.
Axel Rudolph, chief technical analyst at the trading platform IG, said the size of the Democrats' wins will inevitably raise questions about Trump's ability to push through his agenda over the next two years, and that markets are already reacting. He said the dollar is under pressure as investors reassess the political outlook, while gold and silver are drawing safe-haven demand.
Bonds rally as investors seek shelter
Money moved into US treasuries, which traders often treat as a defensive holding when politics becomes uncertain. According to The Guardian, the yield on the benchmark 10-year treasury note fell 4.7 basis points to 4.918%, while the two-year yield dropped 3.7 basis points to 4.597%. Bond yields and prices move in opposite directions.
Gold, another traditional refuge, climbed 2.2% and pushed past $4,000 an ounce.
Stock markets sent mixed signals during the session. Futures initially pointed to a sharply lower open on Wall Street, with the tech-heavy Nasdaq expected to fall on worries about AI companies. Later indicators suggested US shares could open higher instead, helped by a more conciliatory tone from Trump and by gains in Europe.
European indexes rose in early trading. London's FTSE 100 added 0.2%, Germany's Dax gained almost 0.6%, France's Cac 40 was up 0.4% and Italy's FTSE MiB jumped nearly 1.4%. Bank and clean energy stocks, which The Guardian notes have been among the hardest hit by Trump's policies, led the advance. Bank shares rose 2.8%, Denmark's Vestas Wind Systems gained almost 5% and Ørsted climbed 7.4%.
AI stocks and Musk-linked names under pressure
AI-related shares fell during Asian trading hours as investors anticipated that a Democrat-controlled Congress would seek stricter rules for the sector. Chris Turner, global head of markets at ING, pointed to Gina Hinojosa's win in the Texas governor's race on a platform calling for an immediate halt to new datacentre construction. Turner said speculation over whether the new Congress would slow AI capital spending briefly rattled markets, given the sector's role in powering the US economy.
Jesper Koll, an expert director at Monex Group, said momentum behind AI has turned negative regardless of which party holds a majority, and that the equity market entered this election with an adverse stance on the sector.
Kathleen Brooks, research director UK at XTB, said some individual names were absorbing heavy losses. She noted that SpaceX was down 5% in premarket trading and Tesla was off more than 4%, adding that Elon Musk is viewed unfavourably by most Democrats. The Guardian reports that Musk, the world's richest person, put $446m into the midterms, funding Republican-aligned political action committees and groups.
Brooks said investors are reacting to expectations that a Democrat-controlled Congress could mean closer scrutiny of AI companies, which could also raise doubts about a possible merger between Musk's two businesses.
Gridlock cuts both ways
Some strategists argue that divided government is itself a positive for markets, since it reduces the chance of major legislative change. The Wall Street Journal reported that one strategist described a split government as the best possible outcome for investors. CNBC reported that Dow futures jumped 1,000 points as the Democrats' midterm wins removed political uncertainty for Wall Street.
Others are less convinced that Congress will be the deciding factor. Trump has governed largely through executive orders, leading some analysts to question how much a Democratic majority will alter US policy. Tai Hui, a market strategist at JP Morgan Asset Management, said there remain several areas where Trump can move markets, including trade and tariffs, foreign policy and existing regulations.
Societe Generale framed the dollar's move as an election-driven correction tied to positioning, according to FXStreet.
Attention now turns to how quickly Democratic leaders act on AI oversight and datacentre policy, and whether the dollar's slide extends as investors weigh weaker growth expectations against the appeal of US debt.
