Market Outlook 2 November 2026 Dollar Selling Prevails Ahead of the US Midterm Elections; Falling Oil and Treasury Yie

2 November 2026

Dollar Selling Prevails Ahead of the US Midterm Elections; Falling Oil and Treasury Yields Lift European Currencies

Market Overview

At the start of the week, traders are adjusting dollar-buying positions ahead of tomorrow’s US midterm elections.

USD/JPY rose to 157.99 in Tokyo but failed to reach 158.00, then slipped into the 157.60s in London. Meanwhile, EUR/USD climbed to 1.1237 and GBP/USD to 1.3448, with selling against European currencies standing out.

Lower oil prices and US long-term yields are contributing to the move. NY crude futures fell as low as $99.66, while the US 10-year Treasury yield declined into the 4.90% range. The US Dollar Index fell from Friday’s close of 101.879 to a low of 101.435.

However, dollar weakness is not being matched by broad-based yen strength. While USD/JPY’s decline has been limited, EUR/JPY rose to 177.14 and GBP/JPY to 212.01. Today, a correction in the dollar is unfolding alongside gains in yen crosses.

US Midterm Elections

The main event is the US midterm elections on 3 November. Ahead of the vote, traders are reluctant to build large positions.

Reports pointing to Democratic strength in the House are in focus. If control of the government and Congress is divided, budget negotiations and policymaking could become more difficult, potentially limiting the Trump administration’s ability to implement its agenda.

At the same time, some investors see stronger congressional checks as a way to reduce the risk of abrupt policy changes. Concerns about policy gridlock are competing with hopes that Congress could restrain more hardline policies.

The election result alone will not determine the dollar’s direction. It will be important to see how Treasury yields, equities and oil respond.

Although voting takes place tomorrow, it may take time for the balance of power in Congress to become clear.

USD/JPY

USD/JPY is showing resistance just below 158.00, while finding support in the mid-157s.

The pair rose from around 157.46 early in Tokyo to 157.99, then fell back into the 157.60s. The immediate focus is whether it can hold near today’s low around 157.46.

A break below this level would bring the low 157s and then 157.00 into view. Conversely, if USD/JPY recovers into the upper 157s and breaks clearly above 158.00, there could be room for a further test of the upside.

Finance Minister Katayama reiterated today that the authorities are prepared to act against disorderly or excessively speculative moves. Intervention cannot be predicted at a specific exchange rate, but official scrutiny is likely to intensify if yen weakness accelerates.

The fact that USD/JPY has not fallen sharply despite lower US yields points to demand for the pair at lower levels. However, as it failed to reach 158.00, it is too early to call this a renewed uptrend.

Oil and Middle East Developments

Lower oil prices are one factor behind today’s dollar selling.

Falling oil can ease US inflation concerns, reduce expectations of further rate hikes and limit upward pressure on Treasury yields. It can also prompt some unwinding of dollar-buying positions built up amid geopolitical risks.

However, this does not mean that tensions in the Middle East are moving toward a resolution.

Iran has indicated that communication with the US is continuing, but that negotiations on its nuclear programme are not yet at that stage. Reports have also quoted Iranian officials as saying they cannot agree to reopen the Strait of Hormuz before sanctions are lifted.

The US has combined hardline statements with calls for a diplomatic solution, leaving the outlook for negotiations uncertain. Continued weakness in oil could cap the dollar, but reports of stalled talks or renewed attacks could send oil and the dollar higher again.

US ISM Manufacturing Index

Tonight’s main US release is the ISM Manufacturing Index for October.

The report is due at 15:00 London time on 2 November. The United States has switched to standard time, so the release is one hour later than during daylight saving time.

The market expects a reading in the mid-54s, little changed from 54.5 previously and still above the 50 mark that separates expansion from contraction.

A stronger-than-expected result could reinforce the view that US manufacturing is holding up, prompting a rebound in Treasury yields and dollar buying. A weaker reading could add to the dollar selling already under way.

Alongside the headline index, watch new orders, employment and prices paid. If business activity improves but price pressures ease, the impact on rate-hike expectations may be limited.

US construction spending for September is due at the same time. It is expected to rise 0.5% month on month, slowing from the previous 0.9% increase.

Euro

EUR/USD rose to 1.1237, extending its recovery from around 1.1152 in early Tokyo trading.

The pair moved above its 21-day moving average near 1.1197 today. If it holds above that level, the short-term rebound could continue. The next level to watch on the upside is around 1.1250, where the Ichimoku base line is located.

However, it remains too early to conclude that the broader downtrend has reversed. If EUR/USD falls back below 1.1200 and the rebound loses momentum, selling on rallies may return.

Reports of a downgrade to France’s credit outlook and concerns about fiscal consolidation are also weighing on the euro. It is important to distinguish gains driven by dollar selling from those supported by euro-specific factors.

Pound and Yen Crosses

GBP/USD rose to 1.3448. The move reflects both dollar selling today and expectations of a Bank of England rate hike, which have supported sterling since last week.

The immediate focus is whether the pair can hold above 1.3400. However, with expectations ahead of this week’s BOE meeting already supporting sterling, be alert to profit-taking and a possible pullback.

Among the yen crosses, EUR/JPY rose to 177.14 and GBP/JPY to 212.01. As USD/JPY holds in the 157s, gains in the euro and pound against the dollar are lifting the crosses.

In this market, it is difficult to assume that yen crosses will fall simply because USD/JPY is struggling to rise. Monitor both USD/JPY and the European currencies’ performance against the dollar.

Key Points for the Global Session

• Whether USD/JPY can hold around today’s low near 157.46

• Whether selling on rallies strengthens again just below 158.00

• Whether oil remains below $100

• Whether the US 10-year Treasury yield falls further from the 4.90% range

• Whether the US ISM Manufacturing Index prompts dollar buying

• Whether EUR/USD can hold in the 1.1200s

• Whether gains in GBP/USD and yen crosses continue

• Whether election or Middle East headlines trigger further position adjustments

Scenarios

The base case is for the dollar to remain under pressure from position adjustments ahead of the US midterm elections, while USD/JPY searches for direction around the 157 level.

If oil prices and US yields continue to fall and the ISM reading is weak, USD/JPY could break below 157.46 and test lower levels. In that scenario, EUR/USD and GBP/USD may extend their gains.

Conversely, a strong ISM reading and a rebound in Treasury yields and oil could prompt dollar buying, bringing another test of 158.00 in USD/JPY. Ahead of the election and with intervention concerns in the background, any rally should be assessed for follow-through.

Summary

Dollar selling is in focus today amid lower oil prices and Treasury yields, while USD/JPY has declined only modestly and European currencies and yen crosses have gained.

The next question is whether the US ISM Manufacturing Index extends the dollar sell-off or prompts a recovery alongside Treasury yields. With the US midterm elections tomorrow, today’s price action alone should not be treated as a medium-term signal. Watch how each currency and the bond market respond.