US Midterms 2026: What the Election Results Could Mean for the US Dollar

The US dollar faces another political test in November, when Americans vote in midterm elections that could determine how much of Donald Trump’s economic agenda survives the second half of his presidency.

Republicans currently hold narrow majorities in both chambers of Congress, enabling Trump to pursue much of his program with relatively few legislative obstacles. However, amid intense dissatisfaction with the cost of living and growing concern over the economic impact of his war in Iran, Trump’s approval rating has fallen to record lows, putting Republicans on the back foot. Meanwhile, further pain could be in the offing, after the Federal Reserve raised interest rates for the first time since 2023 as renewed inflationary pressures became harder to ignore.

Current election forecasts put Democrats in a stronger position to reclaim the House, although the prospect of them flipping the Senate remains much more finely balanced.

For currency markets, however, the main question is not simply who wins. It is how much a new Congress could constrain the president – and the implications for the dollar are far from clear-cut.

What the 2018 midterms tell us about the dollar today

Trump has been here before. In the 2018 midterms, Democrats captured the House while Republicans retained the Senate. Trump subsequently found it harder to push legislation through Congress, while the Democratic-controlled House ramped up investigations into his administration. This increased political pressure on the White House and consumed attention that might otherwise have been focused on its legislative agenda.

The result was not a suddenly more moderate presidency. Trump increasingly relied on executive powers, while clashes with Congress became more frequent, grinding down the pace of decision-making in Washington. The dispute over funding for his border wall contributed to a lengthy government shutdown, while the House later impeached him over allegations that he had pressured Ukraine to investigate Joe Biden – his Presidential rival at the time.

The lesson for investors, however, is that losing the House can constrain Trump without necessarily making him less disruptive.

What could a new Congress actually stop — and what could it not?

A Democratic House would have considerable power to investigate the administration, issue subpoenas, control congressional committees and initiate impeachment proceedings, all of which would make it substantially harder to pass new legislation supporting Trump's economic priorities. Senior Democrats have already made clear that they intend to investigate the Trump family’s business dealings since the start of his second term, as well as companies with government contracts or financial links to the administration.

A Democratic Senate would have additional leverage, with the power to confirm cabinet members, judges and senior officials. That could give Democrats significant influence over Trump's ability to fill key positions and put his stamp on the levers of government.

But even Democratic control of both chambers would not amount to Democratic control of government. Trump could veto legislation, with an override requiring a two-thirds majority in both chambers. Nor would Congress necessarily be able to prevent the president from exercising powers already granted to the executive branch.

That distinction is particularly important for tariffs. Trump's second term has demonstrated his willingness to seek alternative legal routes when courts constrain one source of tariff authority. Congress has now expanded his room for manoeuvre, passing legislation allowing tariffs of up to 100% on countries buying Russian oil and gas or helping to evade sanctions. This gives Trump considerable discretion over which countries are targeted and how the powers are used, raising the prospect that a measure intended to pressure Russia and its biggest energy customers could become another tool for wider trade negotiations.

That is important for currency markets. A Democratic Congress could constrain some aspects of Trump's legislative agenda without necessarily bringing an end to the trade uncertainty that has unsettled markets. Indeed, the latest legislation is a reminder that Congress can sometimes expand Trump's powers even as it seeks to constrain him elsewhere.

The US dollar faces competing forces under a Republican Congress

A Republican victory in both chambers, meanwhile, would give Trump continued scope to pursue tax cuts and spending measures.

His proposed $5,000 “dividend” payment to American adults is a striking example. Trump has explicitly tied the proposal to Republicans retaining control of Congress, and at around $1.2 trillion if paid to every adult, it would have significant implications for the deficit unless offset by new revenues or spending cuts.

Such measures could support growth and push Treasury yields higher, offering some traditional support for the dollar. But that benefit could be offset by renewed concerns about inflation and US fiscal sustainability. With the Fed having just resumed interest rate increases, further fiscal stimulus could make its fight against inflation more difficult, while adding to concerns about the US government's debt burden.

Political gridlock and the dollar: risks of a divided Washington

A Democratic-controlled Congress could instead limit the scope for further fiscal expansion. Greater congressional resistance to new spending and tax cuts might reassure investors concerned about deficits and political pressure on US institutions, including the Fed.

But divided government brings risks of its own. Battles over government funding or the debt ceiling could reintroduce the sort of political uncertainty that markets tend to dislike. A White House facing congressional resistance could also have greater incentive to rely on executive action, potentially making policy less predictable rather than more restrained.

Foreign policy is an even bigger wildcard. Congress has important powers over funding and military action, but the president retains considerable authority in foreign affairs. A Democratic victory therefore would not necessarily prevent Trump from generating further geopolitical shocks, whether through the conflict with Iran, further interventions in South America, or renewed tensions with US allies.

For the dollar, the resulting impact could run through oil prices, inflation and expectations for the Federal Reserve, making the political outcome difficult to separate from the wider economic backdrop.

The midterms therefore offer no simple bullish or bearish signal for the US currency. Instead, they could shift the balance between two competing risks: a continuation of Trump's fiscal and trade agenda under unified Republican control, or greater congressional constraints accompanied by political gridlock and greater reliance on executive powers.

For the dollar, the crucial question may be which risk markets ultimately value more highly: the inflation and fiscal consequences of fewer constraints on Trump, or the uncertainty that could come with a divided Washington.

Either way, November is unlikely to mark the end of the political risk premium attached to the dollar. It could simply change its form.

Stay ahead of the political and currency risks

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This commentary reflects Bondford’s views and should not be construed as representing the views of the author’s employer or any other affiliated organisation.