US FX WRAP: Dollar plunges post midterms amid a blue tsunami

The Dollar Index was pressured, with yields also lower, given the Democratic sweep in the US midterm elections, which saw the Greenback soften, as expected. Rabobank writes that, irrespective of the historic moments the midterm elections have provided, the Iran war could remain the bigger focus for inflation and central bank policy, and therefore for the USD. On Wednesday's US data docket, ISM Services fell more than expected, while the internals were mixed: business activity and new orders declined, but encouragingly, employment rose and the price indices fell. Ahead, the US jobs report and Williams on Friday are the highlights, along with earnings from Arm and Qualcomm after-hours today.

G10 FX saw gains across the board on the aforementioned Dollar selling, rather than any currency-specific newsflow. The Antipodeans outperformed, buoyed also by risk sentiment, while the Yen was the relative laggard, albeit still eking out gains, as risk-on reduced haven demand. For the Euro, the EZ HICP flash was in line, with core steady at 2.5%, while the final EZ composite PMI was revised lower. Elsewhere, the Netherlands nominated Knot for the role of ECB President. On EUR/USD, Rabobank writes that it has been expecting the pair to hold around 1.12 on a one-month view, and that its expectation of a dip to 1.10 on a three-month view is based on anticipated pressure on the EUR in the run-up to the French presidential election.

On the central bank front, the Riksbank lifted its policy rate to 2.00%, in line with Wall St. consensus, and said if the outlook for inflation and economic activity holds, it is likely that the policy rate will be raised further in the coming year. On inflation, the bank said risks are tilted to the upside due to the ongoing Middle East crisis and supply disruptions. In Poland, the NBP left rates on hold at 3.75%, as widely anticipated. The BCB decision is due later on Wednesday. Pantheon says the country's post-election turmoil has left the Copom little choice but to pause, and expects further easing eventually, although BRL weakness and fiscal risks threaten to keep rates high.