• Brianna Lizeth

Dollar Down as U.S. Democrats Win Senate Control

The dollar was down on Thursday morning in Asia, hovering near its lowest level in nearly three years as Democrats cinched both U.S. Senate seats on offer in Georgia’s runoff elections.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged down 0.12% to 89.392 by 11:31 PM ET (4:31 AM GMT).

The USD/JPY pair inched up 0.07% to 103.12. A fresh state of emergency for Tokyo and the neighboring Saitama, Kanagawa and Chiba prefectures is due to be declared in Japan later in the day.

The AUD/USD inched down 0.02% to 0.7800, as Australia’s national cabinet meets on Friday, a month earlier than planned. The NZD/USD pair inched up 0.10% to 0.7296.

The USD/CNY pair inched down 0.07% to 6.4572, after the State Administration of Foreign Exchange signaled a desire for a slower pace of gains on Wednesday.

The GBP/USD pair was steady at 1.3607, remaining below the almost three-year high of $1.3703 seen on Monday.

“With Brexit now behind us, we are starting to leg into short-GBP positions. With the USD still trading on a uniformly weak footing, however, ... we look to AUD and JPY to express GBP caution,” TD Securities strategists Mazen Issa and Ned Rumpeltin said in a note.

In Georgia, the Democrat pair of Jon Ossoff and Raphael Warnock are headed to the Senate after declaring victory over their Republican rivals David Perdue and Kelly Loeffler. The victories clear the way for President-elect Joe Biden to push through his legislative agenda, including more stimulus measures, when his administration takes office on Jan. 20.

A Democrat-controlled Senate is considered a net positive for economic growth globally and for most risk assets. However, it is negative for bonds and the dollar as the U.S. budget and trade deficits could widen further.

Lawmakers resumed their meeting to certify Biden’s win in the Nov. 3 elections, which were interrupted by supporters of President Donald Trump who stormed Capitol Hill to protest the certification.

However, currency markets remained relatively calm even amid the chaotic scenes in Washington D.C.

Mizuho Securities chief currency strategist Masafumi Yamamoto sees the dollar’s fortunes split with Democrats controlling both Houses.

“The dollar will remain weaker against commodity currencies like the Aussie and emerging market currencies,” which benefit when risk sentiment is positive, he said.

At the same time, “higher Treasury yields should benefit the dollar against the euro and the yen, because the dollar has underpriced the potential for U.S economic recovery under Biden,” Yamamoto added.

Some investors predicted that with the dollar index falling nearly 7% in 2020 and as much as 0.9% in 2021 to date, the greenback could get a bit of respite from some unwinding of a crowded trade.

“People have been bearish on the dollar now for at least six or nine months Obviously you are going to have to take a little bit of a breather every now and then,” Silicon Valley Bank senior FX trader Minh Trang told Reuters.

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