NEW YORK (Reuters) – The U.S. dollar gained on Wednesday after Democrats looked unlikely to take control of the U.S. Senate as a result of Tuesday’s U.S. presidential election, leading investors to unwind bets that a large fiscal package is likely.
President Donald Trump and Democratic challenger Joe Biden on Wednesday each faced narrow paths to potential victory in a close-fought presidential election that will be determined by a razor-thin margin.
A so-called “blue wave” of votes for Democrats did not emerge as many had expected, making it likely that Republicans will maintain control of the U.S. Senate, and oppose any massive increase in stimulus spending.
“What’s tough is you can’t even say for sure what the results are going to be, but a split Congress is likely,” said Edward Moya, senior market analyst at OANDA in New York.
“The likelihood of this outcome is that it’s just going to really provide more reason for the Fed to do more … you’re probably going to see that the dollar decline will still take place, it just won’t be as accelerated as with what would have happened with a blue wave,” Moya said.
The dollar index =USD rose 0.62% to 93.708, after reaching a one-month high of 93.41 earlier.
The euro EUR= fell 0.26% to $1.1681 and the greenback gained 0.03% against the Japanese yen to 104.49 yen.
Riskier currencies including the Australian dollar AUD= underperformed, with the Aussie last down 0.46% at $0.7127.
Despite uncertainty over the U.S. election result, risk appetite remained solid with stocks rising, which likely limited the strength of Wednesday’s dollar rally.
“We have not so far seen big risk-off moves so I would think that probably that’s the template for how things will evolve here,” said Jonathan Davies, head of currency strategy at UBS.
“So even if we’re getting more indications that it’s going to be drawn out, the experience so far is not suggesting that we’re going to see huge FX volatility and huge dollar strength,” he added.
Overnight volatility gauges for euro-dollar and dollar-yen fell, after hitting their highest levels since March earlier this week EURONO=, JPYONO=.
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