US Dollar Index rises above 104.00 due to caution as US election race remains competitive

• The US Dollar Index gains ground as early exit polls increase volatility in the financial markets.
• Georgia exit polls indicate that Trump holds a 10% lead over Harris, estimated with less than 1% of votes counted.
• Pennsylvania exit polls show a lead for Harris with about 8% of the expected votes counted.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, appreciates to near 104.20 during the Asian trading session on Wednesday. The US Dollar gains ground due to market caution ahead of the outcome of the US presidential election. Polling stations have now closed in over two dozen states, and early exit polls are starting to come in, increasing volatility in the financial markets.

Early exit polls in Georgia, one of the first states with available data, indicate a tilt toward Republican presidential candidate Donald Trump. With 16 electoral votes at stake, preliminary results suggest Trump has about a 10% lead over Democratic candidate Kamala Harris, although this estimate is based on less than 1% of votes counted, according to The Washington Post.

Preliminary results from the Pennsylvania exit polls show a lead for Harris, according to CBC News. With approximately 8% of the expected votes counted, Kamala has secured a 71% majority. The state has 19 electoral votes at stake.

Follow our live coverage: Trump or Harris? Who will be the 47th President of the US and how will markets react?

Improved US Treasury yields are bolstering the US Dollar, with the 2-year and 10-year yields on US Treasury bonds standing at 4.23% and 4.34%, respectively, at the time of writing. Traders remain cautious due to the tight race in the US presidential election. The market is closely watching the control of Congress, as a sweep by either party could lead to significant shifts in spending and tax policies.

On the monetary policy front, traders are focusing on the Federal Reserve's interest rate decision scheduled for Thursday, with a broad consensus anticipating a 25 basis point cut. According to the CME FedWatch Tool, there is a 96.4% probability that the Fed will lower rates by a quarter percentage point at its November meeting, signaling strong market expectations for a modest cut.

Regarding economic data, the US ISM Services Purchasing Managers Index rose to 56.0 in October, up from 54.9 in September, surpassing the forecast of 53.8. However, the S&P Global Services PMI registered at 55.0 in October, slightly below both the previous reading and the expected 55.3.