FxWirePro: Dollar’s long-term trend rests on Senate election outcome

The recent trade rift between the United States and China, along with investors’ focus on policy winding of major central banks around the world has pushed the U.S. dollar index, which is the value of the dollar against a basket of currencies to the lowest level since 2014. The dollar index is currently trading at 89.1; continuing its decline that started back in December 2016. Several other factors such as the U.S. Treasury Secretary Steven Mnuchin’s welcoming attitude towards the Dollar’s weakness also contributed to the additional decline.

While the above factors contributed to more than a year-long decline in the dollar, the true long-term trend of the dollar would depend on this year’s Senate election in the United States. The election will be held on November 6th, 2018, with 33 of the 100 seats in the Senate up for regular election, and one up for a special election. This is of critical importance as the winners would serve a six-year term from January 2019 to January 2025. With only a thin majority, the Republicans can’t afford to lose more than one seat or it would become next to impossible for President Donald Trump to push legislative agendas through Senate and .make them law.

While President Trump has been successful in passing some key agendas like the tax reforms, it would not be possible for the Republicans to pass the President’s agendas like infrastructure spending and Healthcare reforms and that would severely dent dollar’s strength.  If the Republicans lose a majority in the Senate, Trump’s second term would prove to be less effective compared to his first.