FOREX-Dollar drops on Democrat gains in U.S. senate election

* Dollar index hits lowest since April 2018
* Euro hits new 2018 high versus dollar
* Bitcoin trades above $35,000
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Elizabeth Howcroft
LONDON, Jan 6 (Reuters) - The dollar hit its lowest level in
nearly three years on Wednesday with markets pricing in a
Democrat win in the U.S. Senate election in Georgia that would
pave the way for a larger fiscal stimulus package and fuel
currency market risk appetite.
Democrats had won one hotly contested U.S. Senate race in
Georgia and pulled ahead in the second by 0900 GMT, edging
closer to control of the chamber. Analysts generally assume a Democrat-controlled Senate would
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.
The dollar index hit its lowest since April 2018 as European
markets opened, having slipped gradually overnight. At 0901 GMT
it was at 89.387, down 0.1% on the day =USD .
The dollar also fell to its lowest in six years versus the
Swiss franc, at 0.8761 CHF=EBS .
The euro was up 0.2% at $1.2326, having rose past major
resistance to hit as high as $1.2346 in early European trading
EUR=EBS .
"We had not assumed Democrat victories in these elections
and hence some revisions weaker to the extent of USD weakness we
expect this year may be warranted," Derek Halpenny, head of
research at MUFG, wrote in a note to clients.
"We currently tentatively are targeting 1.2800 for EUR/USD
by year-end," he added.
But Elsa Lignos, global head of FX strategy at RBC Capital
Markets said that she disagreed with the market consensus that
U.S. fiscal stimulus is "risk-on" and therefore dollar-negative.
Instead, she said, big infrastructure spending in the U.S.
would strengthen the dollar, particular against non-commodity
producing developed market currencies.
Riskier currencies also surged, with the New Zealand dollar
and Australian dollar hitting their highest since 2018 and
holding onto these gains in the European session NZD=D3
AUD=D3 .
The move was helped by a range of surveys overnight showing
that manufacturing globally had proved resilient in December,
despite escalating virus cases. A decisive outcome in Georgia could arrive as soon as
Wednesday morning in the United States, although the tightness
of the count suggests an official result may take longer.
"The current quiet on the FX market might just be the quiet
before the storm," wrote Ulrich Leuchtmann, head of FX and
commodity research at Commerzbank. He said that market
participants will have learned from the presidential election in
November that it can take a few days to get the final result.
"USD side is not going to provide any momentum until the
result is sufficiently clear," he said.
"As soon as first market participants begin betting on one
side or the other (Republican USD positive or Democrat USD
negative) others are likely to jump on the bandwaggon."
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 CNY=CFXS CNH=EBS .
Bitcoin traded above $35,000 for the first time, rising to
$35,879 in the Asian session and extending a rally that has seen
it rise more the 800% since mid-March. These gains waned as European markets opened, with Bitcoin
at $34,156.11 at 0915 GMT BTC=BTSP .

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