Investing.com – The dollar was up on Wednesday morning in Asia, steadying as vote counting continues for a U.S. Senate runoff election in the state of Georgia and investors awaiting the results to determine market sentiment’s next move.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged up 0.15% to 89.547 by 11:16 PM ET (4:16 AM GMT), briefly falling to a fresh ten-month low earlier in the session.
The USD/JPY pair inched up 0.09% to 102.81.
The USD/CNY pair inched up 0.05% to 6.4583, with the yuan steadying in offshore trade. The Chinese currency rose to its highest since June 2018 on Tuesday in the wake of the People’s Bank of China lifted the midpoint of its trading band by 1%, the biggest one-day lifting since China abandoned the yuan’s peg to the dollar in 2005.
The rising yuan boosted Asian currencies, which in turn boosted China’s purchasing power for commodities and other imports. Investors also seized the opportunity to keep buying ahead as profit taking and some selling by major state-owned Chinese banks cooled the rally.
On the data front, the Caixin services Purchasing Managers Index (PMI) for December, released earlier in the day, read 56.3, which was lower than November’s 57.8 figure.
The GBP/USD pair edged down 0.12% to 1.3608. The euro also saw a high of $1.2328, its strongest since April 2018, earlier in the session. It slipped back to $1.2281 as results from the Georgia election flow in.
With around 78% of the expected vote in, Republican incumbents Kelly Loeffler and David Perdue led their Democrat rivals Raphael Warnock Jon Ossoff by a percentage point and 1.6 percentage points respectively.
The winners of the two seats will determine which party controls the Senate, with a democrat victory smoothing the way for President-elect Joe Biden’s legislative agenda, which includes more stimulus measures. Results are due later in the day, but razor-thin margins could see a delay.
“The market reaction to the outcome will probably be dictated by what it is assumed to mean for fiscal policy, rightly or wrongly,” said RBC Capital Markets currency strategist Adam Cole.
“If the Democrats do manage to take both seats the assumption will be that Biden has more freedom to set policy and that likely means more fiscal easing,” he added, which would lift risk sentiment and weigh on the dollar.
While potential tax hikes are “not particularly market-friendly”, the extra spending would be broadly bullish for commodities and emerging markets, OCBC Bank investment strategy executive director Vasu Menon told Reuters.