US Dollar Stabilises as Oil Rebounds, Midterm Elections Fuel Caution

(MENAFN- MENAFNEditorial)




The US dollar steadied on Tuesday, supported by a recovery in Treasury yields and a rebound in oil prices following the previous session's sharp losses. Hopes of a diplomatic breakthrough with Iran receded as tensions escalated across the region. Renewed fears of a broader escalation could revive safe-haven demand for the currency and support crude prices, adding to inflation concerns.

Higher energy costs could reinforce monetary policy tightening expectations, supporting Treasury yields and the greenback. At the same time, markets continue to price in a 25-basis-point rate hike in December, and a possible increase next year.
Today's US midterm elections introduce another source of uncertainty. With control of the House and Senate at stake, markets will assess the implications for fiscal policy and the risk of budget gridlock. Expectations of tighter spending could ease concerns over the deficit, whereas prolonged political deadlock or a deterioration in the fiscal outlook could increase the premium investors demand to hold US asset .

Developments among other major central banks may also limit the greenback's upside. Thursday's Bank of England decision is widely expected to deliver an interest rate hike, supporting sterling. Markets are also anticipating potential December increases from the ECB and Bank of Japan, although fiscal pressures in France could constrain the euro's ga ns.

Looking ahead, Friday's nonfarm payrolls report remains the week's main test for interest-rate expectations. Strong employment figures could reinforce the case for further Fed tightening and extend the recovery in yields and the dollar, while weaker data would soften expectations. US activity data and earnings from AI-related companies could also generate volatility, as renewed concerns over the industry could trigger further demand for government bonds.

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