US Dollar: Election scenarios and Iran risk – Commerzbank

Commerzbank’s Norman Liebke argues that the US midterm elections are only one factor for the Dollar, with institutional and geopolitical risks also in focus. He outlines how different Congressional outcomes could pressure or support the Dollar, and highlights potential Iran-related escalation or a contested vote as key sources of volatility for US assets and the Dollar.

Congress outcomes and geopolitical risks

"The US midterm elections are taking place today. The first results are likely to start coming in shortly after midnight CET, although the outcome in particularly closely contested states may not become clear until several days after the election. According to the latest polls, the Republicans appear headed for a significant defeat and could lose not only their majority in the House of Representatives but also control of the Senate."

"If only the House of Representatives changes hands, the dollar would likely face some headwinds as well, albeit to a lesser extent. If the Republicans retain control of both chambers, this should instead provide support for the dollar."

"What happens immediately after the midterms is also likely to be relevant for the dollar. If Trump were indeed to escalate the conflict with Iran again and launch another attack on the country, this would initially point to further increases in energy prices and rising risk aversion. The dollar could benefit from its role as a safe haven, as it did at the beginning of the Iran war."

"On the other hand, the recent hopes of a diplomatic solution put significant downward pressure on oil prices yesterday. A further easing of tensions with Iran could therefore put additional pressure on the dollar. There is also another risk: while a challenge by US President Trump to the election results is not the baseline scenario, it cannot be ruled out entirely given events in recent years. The resulting political uncertainty would increase volatility in financial markets."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)