By Chuck Mikolajczak
Nov 5 (Reuters) - The dollar index rose slightly on Thursday, as oil prices rebounded following a sharp drop in the prior session and investors gauged uncertainties surrounding the war in Iran in the wake of sweeping Democratic victories in the US midterm elections.
Crude prices were up about 2% after plummeting more than 8% on Wednesday as the widespread losses suffered by the Republican Party in the elections earlier this week boosted expectations that the risk of a further escalation
in the US-Israeli war on Iran was diminished.
In addition, US stocks were sharply lower in the early stages of trading, weighed down by a sharp decline in the S&P 500 technology sector as concerns about the massive spending by AI-related companies resurfaced.
Democrats vowed to use their resounding midterm victory to rein in President Donald Trump, setting up two years of possible deadlock in Washington.
STRONG JOBS DATA SUPPORTS FED HIKES
Investors were also awaiting Friday's key government payrolls report. Labor Department data on Thursday showed weekly initial jobless claims fell by 6,000 to a seasonally adjusted 189,000, matching a 57-year low hit in July, and below the 196,000 estimate of economists polled by Reuters.
In other data, US worker productivity grew faster than expected in the third quarter, depressing labor costs and supporting views that the labor market was not a source of inflation.
"It's a little bit of oil rebounding... basically, data that came out this week has been strong enough to support the still-stable US job market, and that just helps with the narrative around Fed pricing, what will happen in December and January, we'll see back-to-back Fed hikes at the end of the year and start of the new year," said Kevin Ford, lead FX and macro strategist at Convera.
Coming off its biggest daily percentage drop in three weeks, the dollar index, which measures the greenback against a basket of currencies, ticked up 0.04% to 101.51, with the euro down 0.01% at $1.1226.
Despite the political shift in the US and drop in crude prices, expectations for the Federal Reserve's interest rate path remained largely unchanged. Markets are pricing in a 74.5% chance of a rate increase of at least 25 basis points from the Fed at its December meeting, according to CME FedWatch, down from 79.9% a week ago.
Cleveland Federal Reserve President Beth Hammack said the US central bank has more work to do to get inflation down to its 2% target, as price pressures remain unacceptably high, while Richmond Fed President Tom Barkin said a gradual pace of rate increases "makes sense."
Rising public debt and the rapid expansion of non-bank finance could curb the European Central Bank's ability to set the appropriate monetary policy, ECB board member Isabel Schnabel said, while flag-waving protesters marched through French cities and public workers went on strike.
BANK OF ENGLAND RAISES RATES
Sterling edged 0.04% higher to $1.3473 after the Bank of England raised interest rates for the first time in over three years on Thursday and warned that at least one more increase was likely if the US-Iran conflict continues.
The Japanese yen strengthened 0.28% against the greenback to 157.95 per dollar after minutes from the Bank of Japan's September meeting, when policymakers raised rates to a 31-year high of 1.25%, reinforced bets for further interest rate hikes.
The BOJ minutes showed some board members signalling a chance of faster-paced increases. The BOJ board also debated neutral rate and market pricing of the BOJ's terminal rate, in a sign of its growing focus on how far the central bank could lift borrowing costs without cooling the economy too much.
(Reporting by Chuck Mikolajczak; additional reporting by Stefano Rebaudo; Editing by Thomas Derpinghaus, Peter Graff and Susan Fenton)
