The recent overall strength of the US dollar index is highly unusual. Previously, stimulated by positive news regarding progress in US-Iran peace talks, the dollar index experienced a significant decline, but quickly recovered almost all its losses. Current market pricing revolves around two main themes: the outcome of the US midterm elections and the extent of progress in US-Iran geopolitical negotiations. Meanwhile, looking at non-US currencies, the risks to the euro are limited. The French protests have not spread to other Eurozone countries, and regional systemic risks are manageable. This round of dollar strength is not driven by euro weakness; the core pricing focus is on the situation in the Middle East.

Election pricing: The baseline scenario favors a divided Congress, which is theoretically bearish for the US dollar.

The current market benchmark is that the Republicans will lose control of the House of Representatives. Logically, a divided Congress would likely hinder Trump's expansionary fiscal policies, leading to a contraction in the fiscal deficit and putting downward pressure on the dollar. However, the election is only one variable affecting the dollar. Commerzbank analyst Norman Liebke points out that, in addition to the election results, escalating US-Iran conflict and disputed election outcomes are also significant sources of volatility for the dollar and other asset classes. If the Republicans retain control of both houses, expectations of fiscal expansion will support the dollar; if the Democrats win both houses, the dollar will face more significant pressure.

Negotiation impasse: News emerges from Qatar's mediation, but Iran's conditions are difficult for the US to accept.

Qatar, acting as mediator, presented a new negotiating proposal, expecting responses from both the US and Iran within 36 hours. This news initially brought a sense of easing to the oil market. However, the peace framework simultaneously released by the Iranian military significantly raised the negotiation threshold. Iranian Armed Forces Chief of Staff Abdullahi proposed five principles for sustainable peace in the region: ending all fighting on all fronts, including Lebanon and Palestine; fully lifting sanctions against Iran and unfreezing assets; demanding war reparations from the US for past conflicts; recognizing Iran's sovereignty over the Strait of Hormuz; promising not to launch attacks against Iran again; and establishing a homeland security mechanism in West Asia. The war reparations clause, for the US, is tantamount to admitting defeat and is almost unacceptable. The market thus judged that Qatar's mediation was merely a short-term emotional catalyst; the fundamental demands of the US and Iran are vastly different, and the probability of a substantial reconciliation is low. This is the core reason why the US dollar remains strong and the safe-haven premium for oil remains high.

Key points to observe after the transaction

First, the midterm election vote counting process. The fiercely contested seats may take several days to be fully confirmed, and election disputes pose a potential tail risk, amplifying overall market volatility. Second, the US and Iran's response to the new Qatar proposal in the next 36 hours. If negotiations stall and the risk of conflict escalates, oil prices will rise, and the US dollar will strengthen further due to its safe-haven appeal; if both sides signal de-escalation, the safe-haven premium for oil will decline, and the US dollar will face downward pressure. (US Dollar Index Daily Chart, Source: FX678) At 21:35 Beijing time, the US Dollar Index is currently at 101.76.