The dollar’s rally may have enough momentum to shrug off the US midterm election, with high interest rates and a surge in AI-related spending drawing capital even if the vote delivers political gridlock.

Investors are gearing up for the Nov. 3 vote to deliver the kind of policy paralysis that doesn’t generally favor the greenback, with polls indicating the Democrats could win control of at least one of the houses of Congress. Yet the Bloomberg Dollar Spot Index touched the highest level since May 2025 this month propelled by stronger than expected inflation data. For fund managers and strategists tracking the currency markets, the main drivers behind the dollar’s strength are unlikely to shift regardless of the vote.

“While election outcomes can influence sentiment in the short term, we believe investors should be careful not to overstate the long-term impact on the US dollar,” said Nathan Thooft, a senior portfolio manager at Manulife Investment Management. “Currency markets are ultimately driven more by relative economic growth, inflation, interest rates and capital flows than by election results alone.”A divided government would mean fewer changes and a reduction of uncertainty, “providing a degree of stability for financial markets including the dollar,” he said.

Citigroup Inc. strategist Daniel Tobon said that analysis of previous midterm results shows that the dollar tends to weaken after the vote, especially if it delivers a divided government, as expected this time, he said. Still, he expects any weakness to be “short-lived” as other factors point in the opposite direction.

A Democratic-led Congress could block government spending or other initiatives over the remaining two years of Donald Trump’s presidency, reining in growth. Still, Trump could veto any legislation on more regulation, especially around AI, that the Democrats may put forward, leaving one of the main drivers of the US stock market intact, according to Alex Cohen, a strategist at Bank of America, who expects a stronger dollar this year.

“If the AI trade falters on the back of the elections, and the dollar sells off, we’d fade it,” Cohen said.

Perhaps the biggest boost for the dollar could come from the Federal Reserve, which is expected to resume hiking rates once the November election is over. The central bank left rates unchanged on Wednesday with Chairman Kevin Warsh signaling officials’ “readiness to act.”The Fed raised rates for the first time in three years in September, taking the dollar to its best month since March and putting it on track to finish higher for the second straight month, with gains of about 1.8% so far in 2026.

That rally prompted Wall Street strategists to rethink their outlook on the US currency with Morgan Stanley reversing a forecast for the dollar to weaken through the rest of the year.

“Markets are happy with a Congress that is split or with a small Democratic majority in the Senate that is unable to overcome Trump vetoes,” said Steven Englander, the bank’s global head of G-10 FX research. “In our view, any dollar strength would be contingent on markets expecting the Fed to keep inflation low and real rates high.”Asset managers and non-commercial players have maintained their bullish stance on the dollar, holding just under $40 billion in wagers tied to the currency strengthening, according to Commodity Futures Trading Commission data through the week of Oct. 20. They have been upbeat on the greenback since mid-March.

Further out, some headwinds are gathering. Kristina Hooper, chief market strategist at Man Group, said that while haven demand because of a contested election or other election-related dysfunction would support the dollar, she is less upbeat on the currency’s long- term outlook.

“There is a lot of concern out there around the possibility of a slowdown in AI capital spending, which can have a material impact on economic growth” and “exert downward pressure” on the dollar, she said.

The geopolitical backdrop that has benefited the dollar could also shift. Oil prices proved a boon after rising about 80% this year as the war with Iran upended energy flows, weighing on importing nations’ currencies, including the yen and the euro. France’s worsening fiscal outlook has added to pressure on Europe’s single currency.

Trump said earlier this month the US would not attack Iran in the lead up to the November vote, without ruling out a ramp-up of military strikes after the vote.

“What’s most important for FX with respect to the midterms, is how Trump acts on Iran after the vote,” said Noah Buffam, strategist at CIBC Capital Markets. “The expectation right now seems to be that the US will materially step up aggression post-midterms, but we’re less convinced and think that the dollar could sell off alongside oil if military action is limited.”