Dollar squeezed as Georgia counts crucial Senate votes

SINGAPORE/HONG KONG: The US dollar took a breather from its steady descent but could not entirely escape selling pressure in Asia on Wednesday, as traders looked to the outcome of a Senate election in Georgia to drive the next move in market sentiment.

The dollar had dropped through a major support level against the Japanese yen on Tuesday and it briefly extended lower to a new 10-month low of 102.60 on Wednesday before steadying.

The euro also pulled back from a 32-month peak of $1.2328 made early in the Asia session as counting pointed to a close result in a poll that determines control of the US Senate.

The Australian and New Zealand dollars kept pressure on the greenback and hovered just below multi-year highs, while sterling softened very slightly to $1.3614.

Democrats will control both houses of Congress if they win both Georgia Senate seats up for contest.

The prospect of a Democrat agenda becoming law pushed bond yields up and US stock futures down in anticipation of higher government borrowing, higher taxes and more tech regulation.

However, currency markets have been more equivocal, with the likelihood of higher stimulus spending tempering the hit to sentiment and holding the dollar back from making gains.

"The dollar is sort of undecided," said Vishnu Varathan, chief economist at Mizuho Bank in Singapore, since investors are divided whether higher yields will be eventually eroded by higher inflation or flattered by lower inflation.

"My suspicion is that the immediate knee-jerk reaction would be a slightly stronger dollar," he said. "(But) I don't think this is a trade that markets will continue to chase...because I don't think sentiment will be in a tailspin."

Against a basket of currencies the dollar index hit a fresh 2-1/2 year low on Wednesday before firming about 0.1% to 89.575. The benchmark 10-year Treasury yields rose above 1% for the first time since March.

Cryptocurrency bitcoin, sometimes seen as a hedge against inflation, rose more than 4% and hit a record high of $35,879.