FOREX-Dollar hits lowest since March 2018 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

(Updates prices, adds commentary)
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 won one hotly contested U.S. Senate race in
Georgia and pulled ahead in the second by 1200 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. As markets priced in the Democrats winning both seats, the
dollar index hit its lowest since March 2018, extending its
overnight losses during the European session. At 1153 GMT, it
was at 89.292, down 0.2% on the day =USD .
The dollar also fell to its lowest in six years versus the
Swiss franc at 0.87585 CHF=EBS .
"The reaction pattern is along the lines of what we were
originally expecting if we had seen a Blue wave scenario in the
original November (U.S. presidential) election," said Saxo
Bank's head of FX strategy, John Hardy.
"It's still a pretty tough environment to do stimulus and to
do legislation but it's much more possible than if there was no
majority there for the Democrats," he said.
Hardy said that although the increased likelihood of U.S.
fiscal stimulus is in line with expectations for dollar
weakness, if the recent rise in U.S. Treasury yields continues,
then that could curtail the dollar's ability to fall in the
longer term. The euro was up 0.3% at $1.2335, having risen 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.
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 $35,050.00 at 1200 GMT BTC=BTSP .

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