The dollar edged up in early European trade Wednesday, steadying after overnight losses amid uncertainty over the U.S. midterm elections and ahead of key inflation data later in the week.

At 2:50 AM ET (07:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.1% higher at 109.625, having fallen about 1% so far this week.

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Dollar Today Midterm Elections Results


 

The outcome of the US midterm elections remains uncertain, with Republicans looking set to take control of the House of Representatives. However, the Senate races appear too close to call at this point with many of the most competitive races still undecided.

"A Republican victory in either US chamber and the resulting deadlock could pose challenges for further fiscal stimulus, and also raises the prospect of clashes over government funding deadlines and the US debt ceiling," analysts at HSBC said in a note.

"But this is a 2023 issue. The more pressing angle for the market is whether the outcome of the election is actively disputed, potential concerns around whether the 2024 [Presidential] outcome will be accepted."

Also looming on the horizon is Thursday’s key U.S. consumer inflation data, which is expected to show the annual CPI reading fell to 8.0% in October from 8.2% the previous month, while the core reading, which excludes volatile food and energy prices, is seen dropping to 6.5% annually, from 6.6%.

The dollar has been under pressure lately from expectations that the Federal Reserve will soon return from its aggressive hiking cycle, potentially as early as December.

However, an upside inflation surprise could likely change that thinking, helping to boost the US currency.

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Dollar Against Other Currencies

EUR/USD fell 0.1% to 1.0068, with the European Central Bank due to hold a non-policy setting meeting later in the session.

ECB policymakers have made it clear that further interest rate hikes are on the way, after the central bank raised rates by 75 basis points late last month even as euro zone growth suffered.

"I will ... do my utmost to ensure that we, the Governing Council of the ECB, do not give up too early and that we continue to push for the normalization of monetary policy - even if our actions hinder economic development," Bundesbank President Joachim Nagel said on Tuesday.

GBP/USD edged lower to 1.1532, USD/JPY rose 0.1% to 145.75, with the yen recently falling to its weakest level since 1992, as Japanese authorities maintained their highly accommodative monetary policy, while the risk-sensitive AUD/USD fell 0.1% to 0.6495.

USD/CNY edged up to 7.2508, with China struggling to contain its worst COVID-19 outbreak since May.

USD/PLN rose 0.4% to 4.6692 ahead of Poland's central bank policy meeting Wednesday, amid uncertainty over whether the country's policymakers will resume interest rate hikes after a pause last month.

Economists surveyed by Bloomberg were split on the subject, with 17 of 32 forecasters predicting an increase in some measure, while 15 said the rate would remain unchanged.

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