Dollar edges lower as US election outcome cheers global markets

TOKYO, Nov 5 : The dollar edged lower on Thursday in the aftermath of an overwhelming victory by Democrats in US midterm elections that cleared a major source of uncertainty and fuelled a rally in global equities.

The yen firmed after minutes of the Bank of Japan's September meeting reinforced expectations for further interest rate hikes, while sterling held near a seven-week high ahead of a Bank of England policy decision expected to deliver another rate increase.

Democrats swept to sizable majorities in the Senate and House of Representatives, easing concerns about contested results and spurring gains in US Treasuries and equities around the world. The election result raises prospects of political gridlock in Washington and lowers expectations that US President Donald Trump will resume military strikes against Iran, said Ray Attrill, head of FX strategy at National Australia Bank.

"A lot of the market moves that we're seeing, particularly in bonds, I think can be traced directly to that, as well as a weaker dollar on the back of lower Treasury yields," Attrill said on a podcast. 

The dollar index, which measures the greenback against a basket of currencies, fell 0.06 per cent to 101.41, after a 0.36 per cent decline in the prior session. The euro was up 0.12 per cent at $1.1241.

The yen strengthened 0.08 per cent to 158.25 per dollar.

Despite the political shift in the US, expectations for the Federal Reserve's interest rate path remained largely intact. Markets are pricing in an 81.2 per cent chance for a rate increase of at least 25 basis points from the Fed at its December meeting, according to CME FedWatch, up from 77.4 per cent in the prior session. 

The ADP National Employment Report showed US private payrolls rose by 86,000 jobs in October, above the 69,000 estimate of economists polled by Reuters. The report was the latest in a string of labor market data this week, which will wind up on Friday with the release of the government's payrolls report.

Sterling was up 0.38 per cent at $1.3462, after rising to a more than seven-week high of $1.3503 ahead of the Bank of England's policy announcement on Thursday. The pound was poised for its sixth straight daily gain, its longest run higher since an eight-session streak that ended on July 6. 

The BOE expected to raise rates to contend with inflation pressure from soaring energy costs, although it may push back against investors' bets that several more increases will follow next year.

The Bank of Japan meeting minutes from September, when policymakers raised rates to a 31-year high of 1.25 per cent, underscored expectations for further tightening, with one board member signalling scope for faster increases.

The Australian dollar strengthened 0.09 per cent versus the greenback to $0.701, while New Zealand's kiwi climbed 0.12 per cent to $0.5627.  

In cryptocurrencies, bitcoin gained 0.60 per cent to $80,660.59, and ether rose 0.45 per cent to $2,428.15.