Dollar falls while gold and US Treasury bonds rally as markets react to Democrats’ midterm election victory – business live

Over here, stock markets have risen this morning, with banks and clean energy stocks leading the gains. The FTSE 100 index in London is 24 points, or 0.2% ahead.

The pan-European SToxx 600 index gained 0.6%, with Germany’s Dax almost 0.6% ahead and France’s CAC up 0.4%, and Italy’s FTSE MiB index jumping almost 1.4%.

Bank stocks leapt 2.8% and clean energy stocks, which have borne the brunt of Donald Trump’s policies, were also among the top risers. Denmark’s Vestas Wind Systems jumped about 5% and Ørsted surged 7.4% while the German wind turbine company Nordex leapt 6.5%.

European defence stocks fell, while European tech stocks recovered to trade 0.5% higher.

Democrats have taken control of both the Senate and House of Representatives and scored victories in Republican strongholds for the first time in generations, as voters rejected Trump’s agenda.

This ushers in an era of divided government in Washington, following two years in which the Republican-controlled Congress rarely reined in Trump.

Investors are assessing the prospect of tougher US regulation on the booming AI sector (where fears over ballooning debt levels to fund the infrastructure buildout have already led to selloffs in recent months), higher taxes and oversight of cryptocurrencies.

Shares of big technology companies Amazon, Google owner Alphabet, Microsoft and Meta Platforms, the parent company behind Facebook, WhatsApp and Instagram, declined on the Tradegate platform in Europe, according to Reuters. Elon Musk’s Tesla and SpaceX both fell between 4.5% and 5%.

Kathleen Brooks, research director at the trading platform XTB, says:

Overall, these results have had a mild impact on markets so far. Investors will move on from trading the uncertainty of the election results to trading the reality of what they mean for policy.

This is bad news for Tesla and SpaceX on Wednesday, but the semiconductor names, the backbone of the AI trade, could brush off concerns about AI regulation ‌and continue to move higher after Tuesday’s stunning rally for the sector.

However, Aidan Yao, senior investment strategist for Asia at the Amundi Investment Institute, told Reuters:

The significance of these midterm elections is more like a referendum on AI than a referendum on Trump. If the AI theme is subject to some restrictions, then the US economy, US inflation and US monetary policy all become very, very uncertain.

The price of gold, seen as a safe haven in times of uncertainty, jumped 3% to $4,046 an ounce (for spot gold).

Ion Jauregui, market analyst from the UK-based brokerage ActivTrades, says the sharp decline in Nasdaq futures earlier was an overreaction, but they have since recovered strongly.

Although we know that having a Democrat-run congress will increase the likelihood of increased scrutiny for AI, data centres and increased investment into technology, this does not mean that there will be a significant reduction in spending. Big tech companies will be concerned about their valuations. People are beginning to question just how much they are investing in AI and how long until they see returns. Adding regulation concerns into the mix, this looks more like a re-rating.

Big tech stocks, AI infrastructure, datacentre developers and some of the semiconductors are likely to be the most vulnerable to a Democratic Congress. Cryptocurrencies and some financial stocks are also likely to face a more difficult regulatory environment. Renewable Energy, Utility and clean energy investment companies may see benefits from the positive political environment. Healthcare is likely to be more of a mixed bag due to the impact of regulation on drug pricing and insurance.

European clean energy and bank stocks have rallied on the result. However, for now, I would say that it is mostly a repositioning. Clean energy stocks are seeing benefits from the more positive political environment. European banks are also seeing benefits from increased risk appetite. However, this is based on expectations. To make this sustainable, we will need to see if there are real changes to fiscal, energy or regulatory policies due to the new political landscape in Washington.

Turning to the pound, which has gained 0.6% against the dollar to $1.3492 today, he said:

Sterling has gained significantly vs the dollar, nearing $1.35. This is largely due to the weaker dollar and lower US Treasury yields. However, interest rates in the UK will still be driven by domestic inflation and Bank of England policy.

In terms of trade, having a Democrat-run Congress may limit further expansion in US fiscal policy but is unlikely to have a quick impact on the general protectionist approach.

George Saravelos, global head of currency research at Deutsche Bank, has sent us his thoughts on the midterm elections.

1. Risk positive. We agree with the rebound in global equities and risky currencies overnight. The combination of a large Democratic majority in Congress and president Trump’s statement that he is willing to work with the opposition should act as a break on extreme policy outcomes and bring down risk premia. The market is increasingly likely to interpret surprising policy shifts from the executive as time-bound by the next presidential election or the new domestic political configuration.

2. No news is good news on Iran. Over the last 48 hours, president Trump stated that no attack on Iran is imminent and has acknowledged that the Iran war drove part of the election outcome. We have been writing that with oil flows through the Middle East having materially recovered, the market is pricing a large imminent risk premium of re-escalation and energy supply disruption. There is therefore negative time decay on the oil price, the more escalation is delayed, the bigger the downward pressure on oil.

3. All about the debt ceiling (and AI) now. The single biggest source of domestic policy uncertainty remaining in the US is the debt ceiling that will become binding by Q2 of next year. It is reported that Republicans aim to pass a debt ceiling increase via reconciliation over the next few weeks. If this succeeds, it will remove one additional layer of uncertainty on fiscal policy, while also preventing AI and other policy matters from getting bundled up in a protracted negotiation with a Democratic Congress. Irrespectively, question marks around the build-out of AI will likely persist.

On balance, we see political developments overnight as supportive of a continued bottoming out in euro-dollar: lower energy and global policy risk premium but higher AI implementation risks should on balance weaken the dollar. If Congress fails passing a debt ceiling increase this year, we would consider it an added dollar negative.

Sterling has hit a seven-week high against the dollar, which weakened across the board following the mid-term election results.

The pound climbed 0.6% to $1.3495 earlier and is now up 0.5% at $1.3483. It also firmed slightly against the euro, to 83.43 pence.

Sterling is also underpinned by expectations of interest rate hikes from the Bank of England, which is expected to raise borrowing costs from 3.75% to 4% at its meeting tomorrow. Higher rates usually boost a currency because they lead to be better returns for investors.

Markets are expecting three more quarter-point rate hikes in the coming 12 months.

This means more than 2.3m UK households face a sharp rise in mortgage payments as they come off fixed-rate deals next year.

Cryptocurrencies initially fell but then recovered, after the Democrats won control of both houses of ⁠the US Congress in the ⁠midterm elections – seen as a potential ​blow to an industry that has sought faster deregulation for digital assets.

While Donald Trump has been championing reduced regulation, some Democrats have also backed a light-touch ⁠approach.

The crypto sector spent more than $300m backing crypto-friendly Democrat and Republican politicians during the current and previous election cycles, according to Reuters.

Bitcoin, the world’s best-known cryptocurrency, briefly touched a six-week low before recovering to trade 0.8% higher on the ⁠day at $78,460. This came after a reversal in the stock market, where US index futures were up 0.3%, having fallen as much ​as 2% at one point overnight. Ether gained 1.4% to trade ‌at $2,323.

Bitcoin has fallen around 41% ‌since reaching record highs above $122,000 in October 2025, taking the value of the broader crypto market to about $2.6 trillion, according to CoinMarketCap.

Arun Pillai-Essex, principal geopolitical analyst at the risk intelligence company Verisk Maplecroft, has looked at the impact on US trade policy.

He argues the US midterms point to a significant shift in the political landscape, with implications extending well beyond Washington. This is particularly the case for key trading partners and emerging markets in Asia, where US trade and technology policy has an outsized impact on investment and economic growth.

With affordability dominating the midterm debate, we expect growing bipartisan pressure for tariff relief, particularly from lawmakers representing agricultural states and areas with strong trade ties to Canada. We’ve already seen selective exemptions on Canadian imports ahead of the elections.

We expect Congress to become more assertive on trade policy, challenging tariffs through disapproval resolutions and greater oversight. While presidential veto powers limit their direct impact, growing bipartisan opposition could raise the political costs of further escalation.

However, we don’t expect a fundamental shift in the White House approach. Tariffs remain an important bargaining tool, and further duties targeting manufacturing overcapacity across 16 major economies remain likely, adding another layer of restrictions following the forced labour tariffs imposed earlier this year.

The proposed overcapacity tariffs have a significant focus on Southeast Asia and the wider APAC region, adding to the trade pressures already facing regional exporters. A divided Washington is unlikely to offer much relief, with protectionist headwinds continuing to complicate trade and investment decisions across the region.

Overall, we expect the broader tariff framework to remain largely intact, but with greater scope for selective exemptions and negotiated concessions, while the White House keeps the threat of further escalation on the table.

Datacentre opposition cuts across party lines, driven by concerns over electricity, water and other local impacts. We’re already seeing this translate into state-level action, with New York and Texas moving to restrict new developments and growing scrutiny over who ultimately foots the bill.

In a divided Washington, these concerns are likely to gain further political traction, particularly as both parties look to capitalise on public unease around AI. The debate over datacentres is increasingly feeding into a wider debate about the pace of AI adoption and its economic and social costs.

However, we don’t expect the growing political backlash to significantly slow AI investment. Instead, developers are likely to face greater pressure to shoulder infrastructure costs, alongside tighter conditions on new projects.

But the underlying tension isn’t going away. Washington wants to accelerate AI investment to maintain its technological lead, while state and local governments face growing pressure to protect households from high costs.

At the federal level, a divided government will sharpen tensions with Congress and the White House over US tech policy. Two areas to watch closely are advanced semiconductor export controls and restrictions on outbound US investment into sensitive technologies.

The central tension over semiconductor exports is between Congress pushing for tighter, legally binding restrictions and a White House seeking to preserve flexibility to negotiate, selectively ease controls and protect US commercial interests.

And Chris Turner, global head of markets at ING, says:

Investors will be parsing what this all means. For example, Gina Hinojosa won the Texas governor’s race on a ticket of wanting an immediate moratorium on data centre buildouts.

Given AI’s role in powering the US economy, speculation over whether a new Democrat Congress would slow AI capital expenditure plans briefly hit markets. The chip exporter-heavy stock markets of Korea and Taiwan were briefly down 3-4% overnight on news of the blue wave, but have since recouped all those losses.

That the initial market moves are being reversed probably owes to the fact that the Democrats do not take office until January. Also, one wild-card risk removed from the dollar’s downside has been president Trump accepting these results. However, overnight price action could provide a preview for markets in 2027. We had felt that a Democrat Congress would be a mild dollar negative – both in terms of what it would mean for the AI story and the prospect of a prolonged US government shutdown potentially from next summer.

Before then, however, investors are faced with a strong US economy and a Fed ready to tighten further. US labour market data has come in on the strong side so far this week. Fresh insights will be seen today in the release of the monthly ADP figure and the employment component in the October ISM services.

US government bonds have rallied, pushing yields down, as investors were relieved that Democrats’ capture of Congress could limit Donald Trump’s spending plans.

The yield, or interest rate, on the benchmark 10-year US treasury bond fell 4.7 basis points to 4.918%, while the two-year bond yield dropped 3.7bps to 4.597%. Yields fall when bond prices rise.

Analysts said tougher regulation of the AI sector could lead to slower economic growth, but also reduce the need for interest rate hikes.

The dollar has weakened as a result, and is currently trading 0.5% lower against a basket of six other major currencies.

Oliver Faizallah, head of fixed income research at the US investment bank Raymond James, says:

For bond investors, the significance of the midterms is ultimately about what they mean for US borrowing. The result makes further significant fiscal expansion harder to deliver through Congress, potentially easing some of the pressure around government borrowing and Treasury issuance.

That could be supportive for US Treasuries, but it won’t determine the direction of yields on its own. Growth, inflation and the Federal Reserve remain crucial. If the economy slows and inflation continues to ease, there is a stronger case for Treasury yields to move lower.

And Prashant Newnaha, senior rates strategist at TD Securities in Singapore, says:

Bonds are coming out ​as the clear winner as markets put the AI trade on the ​chopping block and embrace the higher possibility that further tax ​cuts are put on ice and government spending slows.

US stock futures have turned positive ahead of the Wall Street open later, as investors continue to assess the implications of the blue wave across the US, with the Democrats winning control of Congress.

Dow Jones futures are up 0.4%, while S&P 500 and futures for the tech-heavy Nasdaq have both edged about 0.15% higher.

Earlier, Nasdaq futures fell 2.4% while S&P 500 futures dropped 1.4%.

Democrats won governorship races in Texas and Georgia, key states for AI datacentres. Many Americans worry about their massive energy use and impact on water consumption and pollution.

The Texas win for the Democrats spells trouble for datacentres, analysts say.

According to Chris Beauchamp, chief market analyst at IG in London:

Greg Abbott’s loss of the Texas governorship means that the construction of more data centres is now open to question. We saw this overnight with weakness in the AI stocks like CoreWeave and Nebius, and while there has been some recovery the questions about how this plays out will continue to dog a sector already grappling with spending worries. Now legislation concerns are on the list too.

Tapas Strickland, chief market strategist at the investing platform Moomoo ANZ in Sydney, told Reuters earlier:

I think the fear is that the pace of the AI infrastructure rollout could slow, potentially quite markedly in Texas, as they start to digest exactly what mandate they might have in terms of AI. Going into this, we were talking about the importance of the Texas and Georgia governor races. Those two states effectively make up about a third of all AI datacentre spend and projects. If both of those go Democrat at the governor level [they did], the potential for it to slow is very much there, and that would obviously cascade through to the rest of the AI sector.

Christopher Hodge, chief US economist at Natixis in New York, says:

Economically, we still don’t think the direct implications are huge. That doesn’t mean that [last night] won’t have big implications. For one thing, Trump doesn’t like bad news and seeing as how he personally selected many of the struggling candidates, he might be looking to change the narrative sooner rather than later. A ‘short and intense’ campaign in Iran has been rumoured ... and that would certainly be a distraction. Presidents typically start making changes after midterms anyway and Trump could be looking for scapegoats. Secretary of Defense Pete Hegseth comes to mind as a possibility. Bessent is another one to watch...he may be looking for a graceful exit if he views the administration as a sinking ship.

Deborah Cunningham, chief investment officer of global liquidity markets at Federated Hermes, says:

Democrats pulled off a double victory in the US midterm elections that few saw coming at the onset of the year. The blue wave means the federal government is sure to be divided on most issues. That typically creates a blockade against new legislation — an environment which broad financial markets traditionally view favorably as variables decrease.

But liquidity investors are different: they primarily look to the US Federal Reserve headquarters further down the National Mall from the Capitol for guidance – and its perspective is unlikely to have changed. The Fed might have wanted to hike rates in October due to stubbornly high inflation, but that policy-setting meeting may have been too close to the election. (Market sentiment has it that Fed officials traditionally have avoided rate moves in those periods to avoid seeming biased to a political party.) That stance, and officials penciling one more increase in 2026 in their September Summary of Economic Projections, could mean a quarter-point hike in December. That would raise the fed funds target range to 4.00-4.25%.

That scenario would be music to the ears of cash investors, as the yields of most liquidity products have the potential to rise in concert with Fed hikes. And additional tightening in 2027 is likely. Why? Due to the lag between policy moves and their impact on the broad economy, inflation might not decline for several quarters. Also, the Fed tends to adjust policy in cycles rather than intermittently. But even if rates stay at present levels, industry liquidity offerings should, we believe, remain attractive.

The Democrats have taken control of Congress in the 2026 midterm elections. What does this mean for investors?

Steven Chiavarone, chief investment officer for global equities at Federated Hermes, says:

Prior to the US midterm elections, we felt that only two outcomes could meaningfully change monetary and fiscal policy: a GOP sweep creating wider voting margins or a Democratic blue wave large enough to produce filibuster- and veto-proof majorities. While the Democrats have retaken both chambers of Congress, it appears not to be enough to create the latter scenario.