United States Dollar Index holds steady near 102.00 ahead of US midterm elections

• US Dollar finds support from safe-haven flows following covert US military strikes on Iran's Qeshm Island.
• Traders weigh midterm election uncertainty alongside prediction markets favoring Democratic gains in the Senate.
• High energy prices sustain inflation concerns, keeping December Fed rate hike probabilities near 73%.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is holding its position after registering modest losses in the previous day and trading near 101.80 during Asian hours on Tuesday.

The US Dollar holds its ground as traders adopt a cautious stance ahead of the US midterm elections. Political pressure on US President Donald Trump and the Republican Party has mounted due to elevated energy prices linked to ongoing conflicts with Iran. Meanwhile, prediction markets currently reflect a 74% probability of the Democratic Party gaining control of the US Senate, highlighting the elevated political stakes surrounding the vote.

Beyond the election, market participants are keeping a close watch on the upcoming US jobs report scheduled for release later this week. The employment data is expected to offer fresh insights into labor market health and help shape expectations for future monetary policy decisions. The Federal Reserve has maintained a hawkish stance, with the CME FedWatch Tool currently pricing in roughly a 73% chance of a rate hike in December following a policy pause in October.

Additionally, the Greenback continues to draw support from safe-haven demand triggered by escalating military hostilities. A Wall Street Journal report citing US officials revealed that the United States launched an attack on Iran’s Qeshm Island on Monday, the latest in a series of covert, limited strikes carried out by Washington in recent weeks. These military actions occurred shortly after President Trump downplayed the likelihood of a full-scale return to war with Iran following Tuesday's elections.

Dollar softens as Fed patience and AI growth concerns weigh on yields

Strategists at Brown Brothers Harriman note that the Dollar and short-term US rates lost some momentum last week, with “USD and short-term Treasury yields drifted lower” after Fed Chair Kevin Warsh “struck a patient tone despite stalled progress on US inflation.” They add that “concerns about an AI investment slowdown compounded the move, casting doubt on the US growth outlook and dampening Fed rate hike expectations,” reinforcing the softer bias in the currency and front-end yields.

Dollar watchers eye October jobs data for confirmation of stabilizing labor demand

Brown Brothers Harriman’s Elias Haddad highlights Friday’s October nonfarm payrolls release as a key test for the US labor story, noting that consensus expects a “+65k rise in payrolls vs. +29k in September, consistent with stabilizing labor demand.” BBH points out that the “unemployment rate is expected to hold at 4.2%, a tick higher than the FOMC 2026 projection of 4.1%,” underscoring a modestly softer backdrop than the Fed’s longer-term view. Wage dynamics will also be in focus, with “average hourly earnings… forecast to rise 0.3% m/m vs. 0.1% in September, and ease at an annual pace of 2.9% y/y vs. 3.0% in September,” a profile that suggests some ongoing moderation in underlying pay pressures even as monthly gains firm.