As Americans head to the polls on this historic election day, the US Dollar is experiencing a relatively muted price action. The US Dollar Index (DXY), which tracks the dollar’s strength against a basket of six major currencies, hovers just below the critical 104.00 level, maintaining important technical support as markets brace for potential volatility. With the looming uncertainty surrounding the outcome of the presidential election, traders are keenly aware that it may take days or even weeks to determine whether Vice President Kamala Harris or former President Donald Trump will emerge victorious.

The Calm Before the Storm

With the DXY trading around 103.84—just above its 200-day Simple Moving Average (SMA)—the market is on edge. As the election unfolds, the index’s ability to hold this support level will be crucial. If the outcome remains unclear, we may witness significant fluctuations, reminiscent of the legal battles that followed the 2000 election between George W. Bush and Al Gore. The current atmosphere is charged; over 165 lawsuits regarding election fraud and recount requests have already been filed, indicating a fierce battle ahead. Without a decisive victory, we could be looking at a protracted period of uncertainty that may impact market dynamics as we head into year-end.

Economic Indicators and Market Reactions

Investors are also keeping a close eye on the economic calendar, with the final readings of the S&P Global and Institute for Supply Management (ISM) Services Purchasing Managers Index (PMI) for October expected shortly. Analysts anticipate no significant changes from preliminary readings, with the Services PMI holding steady at 55.3 and the Composite PMI at 54.3. However, the ISM Services PMI is projected to dip slightly to 53.8 from 54.9, which could influence market sentiment further.

Also read : Market Reactions To US Elections- How Political Odds Affect GBP/USD Movements?

Interest Rates and Federal Reserve Outlook

Adding another layer to the current market sentiment, the Federal Reserve’s upcoming meeting on Thursday is generating considerable interest. The CME FedWatch Tool indicates a staggering 98% probability of a 25 basis point cut to interest rates, with an even more intriguing forecast of an 81.7% chance for a 50 basis point cut in December. This anticipation of a rate cut is influencing the US Treasury market, where the 10-year benchmark rate is trading at 4.30%, down from 4.38% at the end of last week.