Euro and sterling edge higher as dollar weakens ahead of US midterm elections

The euro and British pound traded modestly higher against the US dollar on Tuesday, November 3, as investors positioned themselves ahead of the US midterm elections and Thursday's Bank of England interest rate decision.

Both European currencies benefited from a softer dollar, although gains remained limited by uncertainty surrounding US fiscal policy and the outlook for interest rates.

Price overview

During Tuesday's European trading session, EUR/USD traded around $1.1190, up approximately 0.05%, while GBP/USD hovered near $1.3420, gaining around 0.08%.

EUR/GBP remained close to £0.8340, with sterling holding a slight advantage.

US elections dominate currency markets

Americans headed to the polls on Tuesday in congressional elections that could determine President Donald Trump's ability to advance his economic agenda.

Investors are assessing the possibility of divided government, which could constrain fiscal spending and complicate future tax legislation.

The dollar has weakened recently as declining oil prices reduced inflation concerns and Treasury yields retreated.

Bank of England decision approaches

Sterling remained supported by expectations that the Bank of England will raise its benchmark interest rate by 25 basis points to 4% on Thursday.

British inflation remains elevated at 3.5%, strengthening the case for additional monetary tightening despite signs of weakness in economic activity.

Euro awaits inflation figures

The euro also drew support from Monday's dollar selloff, although concerns about economic growth and France's fiscal outlook limited its advance.

Investors are awaiting Wednesday's eurozone inflation estimates for further indications of the European Central Bank's policy direction.

Market outlook

EUR/USD faces immediate resistance around $1.1220, followed by $1.1250, while support stands near $1.1165.

GBP/USD could test $1.3450 if buying momentum improves, with support around $1.3385.

Election results and central bank expectations are likely to determine the next significant moves in both currencies.