Economists at DBS Bank are vigilant on downside risks in the US Dollar. The US midterm elections on Tuesday could hit the greenback if the Democrats lose control of one or two houses of Congress.

US economy should languish in 2023

“The US mid-term elections on 8 November should be negative for the USD if the Democrats lose control of one or two houses of Congress. The Republicans will push for spending cuts in Social Security and Medicare in exchange for increasing or suspending the debt ceiling limit. The Biden administration warned that failure to do so would lead to a US debt default.”

“Although the US economy exited its technical recession in 3Q22, it should languish in 2023 on restrictive monetary policy with less support from fiscal spending. Against this background, the greenback is considered expensive on a real effective exchange rate basis, not just the spot.”

“We expect the US Dollar Index (DXY) and its components to struggle with their central banks between tightening too little to control inflation or overtightening that increases recession risks.