Currency market moves were extremely tight, with the dollar hardly moving against the euro, and losing some ground to the resurgent Brexit-bound British pound.
The dollar index, a measure of its value against six major peers, increased 0.2 percent to 96.446 – but was down from the 16-month high of 97.20 last week.
Read more: Midterm elections polls LIVE
Voter turnout in national elections, normally lower when the presidency is not at stake, could be the highest for a midterm election in 50 years.
The opposition Democrats are favoured by election forecasters to pick up the 23 seats they need to gain a majority in the House, but have slimmer chances of gaining control of the Senate, opinion polls show.
Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management, said:
“We, like many other market players, expect Democrats to take the House and to have a split Congress. That should mean Trump won’t be able to push for further tax cuts and could lead to a risk-off mood in markets.
“But that is probably already factored in, so I would think any additional selling in stocks would be limited.”
Many investors also expect Trump to continue to take a hard line on tariffs, which he can impose without Congressional approval.
That keeps alive worries about a trade war between China and the United States.
Trump’s massive tax cut, enacted in December, and a spending agreement reached in February have helped lift the U.S. economy, but they have also widened US federal budget deficit.
As a result, Treasury supply has been growing, pushing US bond yields higher.
Georgia state was hit with voting issues in polling stations
The 10-year US Treasuries yield stood at 3.211 percent, near its seven-year high of 3.261 percent touched a month ago, as investors sold ahead of this week’s record amounts of longer-dated government debt supply.
Oil prices were soft after a 2 percent fall the previous day, with US crude futures hitting an eight-month low as Washington granted sanction waivers to top buyers of Iranian oil and as Iran said it has so far been able to sell as much oil as it needs to.
US West Texas Intermediate (WTI) crude futures traded down 0.7 percent at $61.79 a barrel having hit a low of $61.31 on Tuesday, the weakest price since March 16.
Major currencies hardly budged with the euro little changed at $1.1420, holding about one cent above this year’s low of $1.1301 touched on Aug. 15.
The yen changed hands at 113.41 per dollar, after hitting a one-month low of 113.505 on Tuesday.
The British pound hit a three-week high of $1.3111 on Tuesday and last stood at $1.3104, helped by hopes of a Brexit deal breakthrough after Brexit Secretary Dominic Raab said “Thumbs Up” on his way out of a cabinet meeting.
That helped sterling recover losses following remarks from a senior member of the Northern Irish Democratic Unionist Party earlier that it looked like Britain would exit the EU without a deal.
US dollar LIVE: Investors are braced for the fallout from the midterm elections
The euro fell slightly to $1.1392 but there was a resurgence for Pound Sterling, which rose 0.16 percent at 1.3081 against the dollar following increased optimism from Brexit Secretary Dominic Raab that Britain was on the brink of agreeing a withdrawal agreement with the EU.
The US dollar is already up 4.5 percent so far this year against several other major currencies, including the euro, pound and yen.
Few investor experts are forecasting much change to the dollar after the midterm elections, partly because trade policy is unlikely to change even if the Democrats win the House.
But analysts have warned although a strong dollar is a sign of a strong economy, it could also come with huge consequences.
It could in fact lead to more volatility in the stock market because a strong dollar could pose a big problem to several large US companies as it reduces the value of their international sales and profits.
The likes of Harley-Davidson, Hasbro, Huggies maker Kimberly-Clark and Gillette owner Procter & Gamble have all warned the dollar is hiring their results.
A strong dollar can be a problem for large US firms in their home country because it helps make products from abroad cheaper.
Jonathan Curtis, portfolio manager with the Franklin Technology fund, warned: “These big tech companies are global businesses that rely on international markets.
“If interest rates are rising and the dollar is following suit, that reduces the purchasing power of their foreign customers.”
Some have also warned the combined strength of a surging dollar with trade war policies could undo Amercia’s economic strength.
Brian Levitt, senior investment strategist at Oppenheimer Funds wrote in a recent report: “Regardless of the makeup of the House, the President can still influence policy such as trade agreements by issuing executive orders. The prospect of tariffs and a strong dollar is a risk to global growth.”
A strengthening dollar could squeeze economic fragile countries like Turkey, Argentina and Indonesia, all of which have debt denominated in dollars.
Katie Nixon, chief investment officer at Northern Trust Wealth Management wrote in a recent report: “As US economic growth reaches a simmer and global growth slows, the market may view continued hikes as a bearish outcome that would drive the dollar higher, leading to further tightening financial conditions outside the US and exacerbating vulnerabilities in the emerging markets.
US dollar LIVE: Donald Trump’s stance on the strengthening currency has changed several times
Donald Trump’s stance on the dollar has changed several times during his two-year presidency so far.
In January, he said he wanted a strong dollar, contradicting comments made by Treasury Secretary Steven Mnuchin about how a weaker dollar could be good for the US.
But recently, he has criticised the dollar’s strength, most notably when the Federal Reserve raised interest rates, which has increased the currency’s value more.
Pau Morilla-Giner, chief investment officer at London & Capital, warned the dollar’s surge could be coming to an end as it is running out of opportunities to grow.
He said: “Everything that could go well for US consumers in the last couple of years has gone well, but now the tide is turning.
“At the moment you are running out of drivers of growth in the US.”
Alan Ruskin, global head of currency strategy at Deutsche Bank, argued although a divided Congress could lead to a short-term hit in the dollar “because this outcome has the highest probability, this will limit the market impact and lead to a quick reversal of the initial reaction”.
US dollar LIVE: Americans have taken to the polls in the midterm elections
He added “emerging market foreign exchange relief will be short-lived”.
The uncertainty around the dollar has kept investors from making big moves.
Yasuo Sakura, chief investment officer at Libra Investments, said: “Unlike the U.S. presidential election or the UK’s Brexit referendum, the upcoming U.S. midterm elections are not a binary event.
“So it’s unlikely to send stocks significantly in one direction, apart from initial quick reactions.”
Valentin Marinov, head of FX Strategy at Credit Agricole, added: “Markets are in a holding pattern.
“Yes, some traders might take profits on extended dollar long positions but we’re not expecting a big or immediate impact whichever way the election goes.”