The Democrats’ victory in the US midterm elections has triggered a shift in global financial markets, weakening the dollar and pushing bond yields lower. The changes could also benefit Hungary by making it cheaper for the state to borrow money and supporting the forint, although analysts warn that the impact may be temporary.
The Democrats secured majorities in both the US Senate and House of Representatives in Wednesday’s midterm elections, dealing a significant political setback to President Donald Trump. Investors responded by reassessing the outlook for American government spending, economic policy and the technology sector.
The forint strengthens as the dollar weakens
The US dollar lost ground against several major currencies following the result, including the euro, pound and Japanese yen. The forint also strengthened against the dollar.
On Wednesday afternoon, the Hungarian currency briefly traded below HUF 363 to the euro, a level last seen on 19 October. Against the dollar, it strengthened to around HUF 322, compared with approximately HUF 324 earlier in the day.
Government bond yields also declined. The yield on 10-year US Treasury bonds fell by around five basis points to 4.91%, while the yield on German 10-year bonds dropped by three basis points to 3.3%.
US stock markets initially opened weaker but recovered during the day. The S&P 500, which tracks 500 of the largest publicly listed US companies, recorded its biggest intraday gain in three months, according to G7.
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Why could the result benefit Hungary?
One reason for the market reaction is that a Democrat-controlled Congress could make it harder for Trump to push through additional spending measures and expand the federal budget deficit.
For example, the president’s promised USD 5,000 payment to every American adult is now unlikely to go ahead. Investors may also expect greater scrutiny of other government spending, potentially easing concerns about US borrowing and putting downward pressure on bond yields.
This matters beyond the United States. When US Treasury yields fall, European bond yields can also come under pressure, potentially lowering borrowing costs for countries such as Hungary.
There may also be an indirect benefit for the forint. A more divided political landscape in Washington could reduce uncertainty and market volatility, encouraging investors to take greater risks and invest in emerging-market currencies.
András Nagy, an analyst at Erste, told Világgazdaság that this could increase demand for the forint and other emerging-market currencies.
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Analysts warn the impact may not last
However, the positive effects are far from guaranteed. Péter Aradványi, chief analyst at Equilor, told Világgazdaság that the direct impact of the election on Hungarian assets was likely to be limited. He expects domestic economic factors to remain more important in determining the forint’s exchange rate and Hungarian bond yields.
There are also potential risks in the United States. Political disagreements over the federal debt ceiling could intensify again, potentially putting upward pressure on yields, particularly for shorter-term government bonds.
Meanwhile, tougher regulation of artificial intelligence and restrictions on data-centre investments could affect US economic growth. A renewed trade conflict between the United States and Europe would also create risks for the wider market.
For now, Erste expects the euro to remain in the HUF 360–370 range over the coming months. The US election result may offer Hungary a more favourable international financial environment, but it is unlikely to determine the country’s borrowing costs or currency performance on its own.
