Midterm elections: Why Federal Reserve policy still drives the US Dollar

The latest bank commentary suggests that the US Dollar’s trajectory around the midterm elections will be shaped more by Federal Reserve policy than by the political outcome, with a split Congress seen as broadly neutral to mildly supportive, while more sweeping Republican losses could generate short-term headwinds.

ING sees Fed policy and a split Congress keeping the US Dollar broadly supported

ING underscores that the main driver for the US Dollar remains the Federal Reserve, arguing that the midterm elections are unlikely to trigger a major trend reversal. The bank highlights that a split Congress would probably leave the Fed’s policy path intact and could even be slightly positive for the US Dollar, reinforcing the currency’s current policy-driven resilience.

"Still, we doubt that’s enough to trigger a structural directional shift in the dollar. The greenback continues to respond predominantly to the Fed story, which shouldn’t face an immediate and direct impact from the midterm result. We expect a split Congress (R-S, D-H) to have a neutral or slightly positive USD impact."

Commerzbank flags short-term US Dollar risks if Republicans lose Congressional control

Commerzbank focuses on the immediate political risk around the elections, warning that broader Republican losses could weigh on the US Dollar. The bank notes that reduced political backing for the administration, whether through losing both chambers or just the House, would likely translate into short-term pressure or headwinds for the currency.

"In the short term, however, the election result is unlikely to be entirely irrelevant for the dollar. If the Republicans lose their majorities in both chambers, the dollar could come under greater pressure, as the Trump administration would have less political backing overall. If only the House of Representatives changes hands, the dollar would likely face some headwinds as well, albeit to a lesser extent."

The takeaway

Taken together, ING and Commerzbank frame a US Dollar outlook where Federal Reserve policy remains the dominant anchor, but election outcomes can still shape short-term moves. ING sees a split Congress as neutral to slightly supportive for the currency, while Commerzbank cautions that deeper Republican losses could introduce political uncertainty and near-term downside pressure, leaving investors to balance policy-driven strength against event-driven risks.