Credit Agricole CIB Research discusses the USD outlook on the back of the Democrat blue wave of the US midterm elections.

"We noted in USD: party like it's 1999 or sell off like it's 2002 – the US midterms may hold the key, that a Democrat blue wave would weigh on the USD. Democrats are more hostile to the datacentre buildout that is powering the AI investment boom than Republicans. And the USD's fortunes are strongly linked to the capital flows in or out of US technology stocks," CACIB notes.

"Indeed, of the top 10 states with the most data centres, all now have Democratic governors, many with active or planned regulations on datacentre buildout innvestors could relocate their AI capital to states with friendlier AI environments such as Wyoming, Minnesota, Iowa, Wisconsin, Kansas, Nevada, South Carolina and Tennessee. These states' leadership is more mixed and have policies to allow for AI buildouts so long as it aligns with the economic growth of the state. So the midterms more likely dent rather than end the AI investment boom. The performance of US technology stocks over the coming days will be telling for the USD. The main gainers from further sell off in US technology stocks would be the safe-haven CHF, JPY and EUR," CACIB adds.