Dollar drops as stocks surge, Fed keeps policy unchanged

NEW YORK (Reuters) – The U.S. dollar fell to a two-week low against a basket of currencies and a seven-month low against the Japanese yen as surging stock markets reduced demand for the greenback, and as the Federal Reserve kept its loose monetary policy intact.

Stocks jumped as bets on Republicans retaining control of the Senate eased worries of major policy changes that could hurt corporate America under a Joe Biden White House, even as the presidential election hung in the balance. [.N]

Democrat Biden on Thursday inched nearer to victory over President Donald Trump in an exceedingly close U.S. election that hinged on razor-thin margins, while the Republican president launched a flurry of lawsuits hoping to slow down his opponent.

But the so called “blue wave,” where Democrats also take control of the Senate in congressional elections, looked unlikely.

“The investor class loves the idea of a Democratic president and a Republican Senate that will return back to essentially a steady, normal state of affairs,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

The dollar index fell 0.95% against a basket of currencies <=USD> to 92.51.

The euro <EUR=> jumped 0.99% to $1.1838. The dollar dropped 0.95% against the Japanese yen <JPY=> to 103.49 yen, the lowest since March 12, and breached technical support at 104 yen that will now likely form resistance.

The yuan <CNH=> gained to a more than two-year high of 6.5994. The Chinese currency has been heavily affected by Sino-U.S. disputes since the outbreak of a bilateral trade war in 2018.

The dollar has been hurt by the Fed’s zero rate policy and ongoing bond purchases as the U.S. central bank aims to stimulate growth after the economy was ravaged by business shutdowns due to COVID-19.

The U.S. central bank on Thursday pledged again to do whatever it can in coming months to sustain a U.S. economic recovery.

It was “virtually unchanged from the previous meeting’s message,” said Lou Brien, a market strategist at DRW Trading in Chicago.

Some analysts say the Fed may need to act further to boost the economy if there is no large fiscal spending, though others note that it is running out of tools.

If Treasury yields rise meaningfully the Fed is expected to shift more of its bond purchases to longer-dated debt to keep the rates low.

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Currency bid prices at 3:00PM (2000 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar EUR= $1.1838 $1.1722 +0.99% +5.60% +1.1859 +1.1712

Dollar/Yen JPY= 103.4900 104.4800 -0.95% -4.93% +104.5500 +103.4900

Euro/Yen EURJPY= 122.51 122.53 -0.02% +0.46% +123.1600 +122.2200

Dollar/Swiss CHF= 0.9039 0.9124 -0.93% -6.56% +0.9135 +0.9044

Sterling/Dollar GBP= 1.3143 1.2985 +1.22% -0.88% +1.3146 +1.2932

Dollar/Canadian CAD= 1.3035 1.3139 -0.79% +0.41% +1.3177 +1.3028