[MARKET ANALYSIS] USD swept away by a blue wave; G10s firmer to varying degrees

Snapshot: USD under pressure against all G10 peers. The NZD holds towards the top of the pile, whilst the JPY is only mildly stronger against the Dollar. Overnight, USD was pressured as initial projections suggested a Democratic sweep, and more so than what market participants had expected, with several states surprisingly swinging from R to D. Heading into the midterm elections, it was widely viewed that a D majority in both House and Senate would be USD-negative, given the lower growth implications, lower yields and added friction in passing policy. This price action played out largely overnight, with significant selling pressure in the Dollar index, taking it to a session trough of 101.24 (vs 101.73 peak). Whilst the USD weakness has continued into the European morning, G10 peers flipped from displaying a risk-off tone, to a risk-on one. The Kiwi outperforms vs peers, joined closely by the Aussie. A shift which comes after two main points: 1) Republicans winning the Louisiana race, and 2) President Trump sounding fairly conciliatory regarding the D projected victory, indicating openness to work with the opposition. This has perhaps abated some woes surrounding political friction, spurring some risk-on trade. Nonetheless, the USD remains pressured as yields remain lower on the session. Focus now turns to the geopolitical situation, with earlier reports suggesting that Trump could strike Iran soon after the midterms. Overnight, US President Trump said the US has no immediate plan to strike Iran and suggested he was content with the state of the stand-off with Iran. The risk of kinetic action against Iran will keep any further USD pressure at bay for the time being. JPY has not been able to benefit quite as much as some of its other G10 peers. USD/JPY currently holds within a 157.38 to 158.74 range, sitting close to intervention territory. As such, markets were met with jawboning via Japanese Chief Cabinet Secretary Kihara, who noted that authorities will closely monitor market movements with a high sense of urgency. Some market participants may also be thinking about the potential loosening of US-Japan relations following the Dems strong performance. This perhaps will be a longer-term theme, but remains a risk heading into 2027 and 2028, where the presidential elections will come into view.