The dollar bounced after sinking to its lowest level in nearly three years on Wednesday, with markets anticipating a Democrat win in the U.S. Senate election in Georgia that would clear the path for a larger fiscal stimulus package.
Democrats won one U.S. Senate race in Georgia and led in another on Wednesday, edging closer to a sweep in a previous Republican stronghold that would hand them control of Congress and the power to advance President-elect Joe Biden’s policy goals.
Analysts generally expect a Democrat-controlled Senate to be positive for economic growth globally and thus for most riskier assets, but negative for bonds and the dollar as the U.S. budget and trade deficits swell even further.
As markets priced in the Democrats winning both Georgia seats, the dollar index hit its lowest since March 2018 at 89.206, but rebounded to last trade up 0.015% at 89.48.
Fueling expectations of further stimulus measures was a weak report on the labor market in the form of the ADP National Employment Report, which showed private payrolls post their first decline in eight months as coronavirus cases surge. However, a reading on factory orders for November exceeded expectations and indicated a sustained manufacturing recovery.
But after a fall of nearly 7% in 2020 and a drop of as much as 0.9% in the new year, the dollar turned higher as a crowded trade began to unwind, which was also supported by a climb in interest rates. Analysts still expect the longer-term trend for the greenback to be weaker, however. nL1N2JH1B9]
“People have been bearish on the dollar now for at least six or nine months,” said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.
“Obviously you are going to have to take a little bit of a breather every now and then.”
The euro gave up earlier gains and was up 0.11% to $1.2312, after earlier having risen past major resistance to as high as $1.2349.
Riskier currencies also surged, with the New Zealand dollar and Australian dollar touching their highest in nearly three years and holding onto most of the gains even as the dollar recovered.
The move was helped by a range of surveys overnight showing that manufacturing globally had proved resilient in December, despite rising coronavirus cases.
Elsewhere, U.S. President Donald Trump escalated tensions with Beijing by signing an executive order banning U.S. transactions with eight Chinese software applications.
After surging on Monday and Tuesday, the yuan softened, after China’s central bank appeared to signal a preference for a more moderate pace of intervention.
The yuan has gained around 10% on the dollar since last May as China’s economic rebound has led the world’s pandemic recovery.
Bitcoin traded above $35,000 for the first time, rising to $35,879.35 in the Asian session and extending a rally that has seen it rise more the 800% since mid-March.
The gains eased slightly, with the cryptocurrency last up 4.81% at $35,676.61.
Currency bid prices at 2:46PM (1946 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 89.4800 89.4740 +0.02% +0.00% +89.8030 +89.2060
Euro/Dollar $1.2312 $1.2298 +0.11% +0.77% +$1.2349 +$1.2266
Dollar/Yen 103.1100 102.7400 +0.34% -0.19% +103.4400 +102.6100
Euro/Yen 126.94 126.30 +0.51% +0.02% +127.2300 +126.1500
Dollar/Swiss 0.8792 0.8783 +0.11% -0.61% +0.8821 +0.8759
Sterling/Dollar $1.3606 $1.3623 -0.11% -0.40% +$1.3670 +$1.3536
Dollar/Canadian 1.2688 1.2668 +0.17% -0.35% +1.2722 +1.2631
Aussie/Dollar $0.7789 $0.7760 +0.42% +1.30% +$0.7820 +$0.7734
Euro/Swiss 1.0824 1.0802 +0.20% +0.16% +1.0836 +1.0799
Euro/Sterling 0.9046 0.9020 +0.29% +1.21% +0.9085 +0.9018
NZ $0.7281 $0.7251 +0.43% +1.41% +$0.7314 +$0.7237
Dollar/Norway 8.4175 8.4715 -0.78% -2.12% +8.4925 +8.3875
Euro/Norway 10.3610 10.3984 -0.36% -1.01% +10.4328 +10.3450
Dollar/Sweden 8.1758 8.1758 +0.06% -0.25% +8.2123 +8.1259
Euro/Sweden 10.0632 10.0573 +0.06% -0.13% +10.0875 +10.0295