Dollar at multi-year highs after U.S. elections, focus on ECB

The dollar rose on Wednesday, extending multi-year highs after Republicans won control over both chambers of the U.S. Congress for the first time since 2006, lifting investor expectations for more pro-business policies.

 
Chances for a reduction in political gridlock boosted the greenback on hopes this might spur more economic recovery. An improving U.S. economy, with the unemployment rate at 5.9 percent, its lowest point since mid-2008, sharply contrasts with the moribund economies of Japan and the euro zone.
Republicans seized control of the U.S. Senate, a blow to President Barack Obama that will curb his legislative agenda in his last two years in office.
“The decisive Republican win might help reduce political gridlock on Capitol Hill and that is a positive for the dollar because it can tamp down on political uncertainty,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, D.C.
The dollar extended its months-long run to hit a seven-year high against the Japanese yen. Bank of Japan Governor Haruhiko Kuroda undercut the yen, saying the central bank is ready to do more to hit its 2 percent goal and boost the economy out of two decades of grinding deflation.
The dollar hit a seven-year high of 114.84 yen before slipping back to 114.72 yen for a 1 percent gain. The yen hit a 30-year low against the Swiss franc of 119.16.
Ahead of Thursday’s European Central Bank meeting, the euro slid back toward Monday’s 26-month low of $1.2441, according to Thomson Reuters data. It traded at $1.2479, off 0.53 percent on the day, and up from the session low $1.2456.
Investors expect the ECB to hold off on fresh policy action despite more evidence of a struggling economy.
“We don’t expect a policy move, but a strong signal that the ECB will reach its balance sheet target and lift inflation expectations. I think if (ECB chief Mario Draghi) hints that other policy options are open, that would be sufficient to weaken the euro,” said Vassili Serebriakov, currency strategist at BNP Paribas in New York.
In late New York trade, the dollar index hit a 4-1/2 year peak of 87.606 .DXY against a basket of currencies.
U.S. private employers added more jobs than expected in October, payrolls processor ADP reported. Friday’s October U.S. jobs report is expected to show an unchanged unemployment rate of 5.90 percent. On the negative side, the pace of growth in the U.S. services sector slowed more than expected.
The expectation that U.S. monetary policy will tighten and the U.S. economy is on a general upward trajectory is keeping the dollar’s gains intact.
“Both the ADP and the employment component of non-manufacturing ISM, pointing to a strong non-farm payroll number on Friday,” said Serebriakov.
The Australian dollar slumped nearly 2 percent to US$0.8561, its worst one-day performance since June 2013. The Aussie dollar has suffered losses given its close ties to the Chinese economy, which is showing signs of weakness along with the plunge in commodities prices, a major factor that helps determine its value.
A rebound in oil prices, a major influence on the Canadian dollar, helped pull the loonie off its near 5-1/2 year low against the U.S. dollar on Wednesday. The greenback was down 0.16 percent at C$1.1393, having reached a peak of C$1.1466.