US dollar inches lower as midterm election results trickle in

U.S. one-dollar and five-dollar currency notes; taken September 2018.U.S. one-dollar and five-dollar currency notes; taken September 2018.

For all the political heat from the U.S. midterm elections, which were voters’ first big referendum on Donald Trump’s presidency, the U.S. dollar’s reaction during Asian trade was decidedly lukewarm as results trickled out.

After initially rather directionless trading overall, the U.S. dollar inched lower against the other majors as it became clear that the Democrats would take the House of Representatives. while Republicans held on in the Senate. The major news channels called that result well before all votes had been counted.

The overall vote seems a long way short of the decisive shift in favor of the Democrats some had predicted.

But even without political cues, the U.S. currency remains quite securely underpinned by the Federal Reserve’s policy of clear, gradual monetary tightening.

This has seen U.S. interest rates rise eight times from their post-crisis low in late 2015, with another quarter-point increase expected by the markets next month.

While the Fed remains clearly the most aggressive major central bank, it is hard to see a reason for a sustained turnaround in the dollar strength which has marked much of 2018.

However, the prospect of legislative slippage, if not gridlock, as the Democrats flex their muscles in the House may take some of the shine off prospects for the greenback as this year bows out. The Fed’s tone at its final policy meeting of the year is likely to be decisive for the currency’s near-term prospects.

That meeting takes place on December 18 and 19. This month’s meeting, now under way, is thought unlikely to produce any move.

Against the Japanese yen, the dollar remains quite close to its high for the year. That was the 113.82 hit in late October. At 1:33 P.M. SGT, the dollar/yen was at 113.244.

The U.S. dollar index, which measures the greenback against a basket of currencies, was at 96.01 at 1:24 P.M. SGT, off highs of 96.43 touched earlier in the session.