The U.S. dollar weakened against major currencies on Wednesday morning, while Treasury yields fell and stock markets rose across much of the world after projections showed Republicans losing control of the Senate and House of Representatives to Democrats in the midterm elections. The result is expected to make it harder for President Donald Trump to pass legislation through Congress, where his party had held a majority during his first two years in office.
Markets initially reacted with sharp declines in Asian shares, cryptocurrencies, Treasury yields and the dollar, before some assets recovered. Most major Asian markets closed higher. Tokyo fell 1.41%, while Shanghai gained 2.16%, its biggest daily rise since April. The CSI 300 index, which tracks companies listed in Shanghai and Shenzhen, advanced 2.31%. Seoul rose 0.62% and Hong Kong gained 1.67%.
European shares were also higher. At around 7:30 a.m. Brasília time, the STOXX 600 was up 1.23%, while Frankfurt gained 1.05%, London 0.75%, Paris 1.12%, Madrid 2.22% and Milan 1.93%. U.S. stock futures were positive ahead of the market opening, with the Dow Jones up 0.84%, the S&P 500 up 0.35% and the Nasdaq up 0.16%.
The euro rose 0.4% to $1.133, the pound gained 0.5% to $1.348, the Swiss franc strengthened 0.6% to 0.8163 per dollar, and the yen advanced 0.4% to 158.12 per dollar. Deborah Cunningham, Federated Hermes’ chief investment officer for global liquidity markets, said Democrats had achieved a double victory that few had anticipated at the start of the year, pointing to a federal government likely to be divided on most issues.
Analysts also cited relief that Trump’s promise to distribute $5,000 to American adults would not be carried out. Treasury prices rose as investors anticipated that political gridlock in Washington could limit government spending. Yields on benchmark 10-year notes fell 2.1 basis points to 4.9291%, while two-year yields declined nearly 1.2 basis points to 4.6017%. Yields had fallen more sharply earlier, reaching their lowest level in almost two months. Bond yields fall when prices rise.
Cryptocurrencies also rebounded after dropping sharply overnight. Bitcoin, which had touched a six-week low, was up 0.76% at $78,700 around 7:40 a.m. Ether gained 1.4% to $2,323. Smaller tokens including solana, dogecoin and cardano rose between 1.6% and 2.2%, although each had lost nearly a quarter of its value over the previous month, according to CoinGecko.
The election result could affect the outlook for cryptocurrency legislation. Tim Sun, a senior researcher at HashKey, said political changes could interrupt progress on structural crypto legislation and the development of an institutional framework. The sector spent more than $300 million backing pro-cryptocurrency politicians from both parties during the current and previous election cycles, in roughly equal proportions.
Investors were also weighing the possibility that regulation of artificial intelligence could slow growth and reduce the need for interest-rate increases. Andrew Lilley, chief interest-rate strategist at Sydney-based investment bank Barrenjoey, said stronger prospects for a Democratic victory in 2028 could increase the likelihood of AI regulation. He added that the Federal Reserve might view this as a reason not to raise rates, which currently stand between 3.75% and 4%.
Sources: Folha Mercado.