Dollar hits five-week low as oil and Treasury yields fall ahead of midterms

Oil selloff weighs on the dollar

The U.S. Dollar Index was down about 0.27% at roughly 101.60. The euro gained around 0.5%, approaching $1.1216, while the British pound rose above $1.34. The yen remained weak, with the dollar trading near 157.70 yen.

Renewed U.S.-Iran diplomatic efforts raised hopes that Middle Eastern energy supplies would face fewer disruptions. CNBC reported a 7.7% drop in Brent crude futures to $104.66 a barrel and a 7.3% decline in U.S. West Texas Intermediate to $96.50. PA News Agency put Brent's fall at about 7% to below $106, its lowest since mid-October, following a surge to nearly $118 the previous week.

According to CNBC, Secretary of State Marco Rubio said over the weekend that President Donald Trump had not decided to attack Iran and preferred a diplomatic resolution. Iranian Foreign Minister Abbas Araghchi said an agreement was possible if Washington removed sanctions, returned its regional military presence to previous levels and lifted the blockade.

OPEC+ also agreed over the weekend to leave December production quotas unchanged. DPA, in a report published by Yahoo Finance, characterized that decision as largely symbolic because of the war in Iran.

The oil decline helped lower Treasury yields, making the dollar less attractive relative to currencies whose domestic interest rates were expected to rise further.

Rate expectations remain in focus

The Fed left its benchmark rate at 3.75%-4.00% last week, although two policymakers favored an immediate increase. ATFX noted that the central bank had raised rates to that range on September 16, 2026, in its first hike since 2023, and had indicated that another increase could follow.

Markets still expect a quarter-point hike in December. Cheaper energy could alleviate some inflation concerns, but the latest manufacturing figures showed continued price pressure: Reuters reported that the Institute for Supply Management's U.S. manufacturing Purchasing Managers' Index climbed from 54.5 in September to 55.5 in October, while input prices stayed elevated.

In the United Kingdom, rising inflation has fueled expectations that the Bank of England will raise its rate from 3.75% to 4% on Thursday, November 5. PA News Agency reported that lower oil prices could nevertheless prompt policymakers to temper their guidance on subsequent increases.

Congressional control adds policy uncertainty

Voters will decide all 435 House seats and 35 Senate seats on November 3. The outcome could reshape expectations for federal spending, borrowing, taxes and financial regulation. A divided government could make major spending and tax bills harder to pass.

Reuters reported that Democrats were widely expected to capture the House but faced a tougher contest for the Senate. According to ATFX, Polymarket prediction markets had assigned a 92% probability to Democratic control of the House as of October 22.

ATFX cautioned that midterms have been a secondary influence on the dollar compared with Fed policy. Its analysis cited contrasting outcomes after the previous two elections: the Dollar Index gained 1.7% over the year following the 2018 midterms but lost 3.7% in the year after the 2022 vote.

Employment report is the next economic test

Friday's U.S. employment report will give investors another measure of the economy's strength after recent signs of persistent inflation and resilient growth. Stronger jobs figures could reinforce expectations for additional monetary tightening, while a further decline in Treasury yields could keep pressure on the dollar.

For the Dollar Index, the technical levels to watch are support near 101.30 and resistance around 101.85.