The trend toward reviewing U.S. dollar buying strategies continues against the backdrop of the U.S. midterm elections. The shift in long-term interest rates and share-price movements have been cited as influencing factors, and the market's focus is expected to turn to the response of share prices.
According to CFTC statistics, net positions in the five major non-U.S. dollar currencies expanded their net U.S. dollar buying in mid-October, but contracted for 2 consecutive weeks thereafter. This suggests that U.S. dollar buying strategies were increasingly being reconsidered.
Long-term interest rates accelerated their rise in September, but peaked in early October and then turned lower. The interest-rate differential between the United States and other countries also shifted from widening to narrowing. Movements in the differential are believed to have affected the U.S. dollar's relative strength.
Falling share prices may have contributed to the decline in long-term interest rates, creating a process in which the rise in bond prices and decline in long-term rates reduced the advantage of buying U.S. dollars. This may have formed a chain of events in which falling share prices led to lower long-term interest rates and then to a narrower interest-rate differential.
The shift in financial markets since October can be summarized as making share-price movements the focus for the future supply and demand balance for the U.S. dollar. The impact of the U.S. midterm elections is also expected to depend on the response of share prices.