Dollar hits 7-year high against Yen on US elections

The dollar hit a seven-year high against the yen and a 4-1/2 year peak against a basket of currencies on Wednesday after victories for the pro-business Republicans in US mid-term elections.

Republicans rode a wave of voter discontent to seize control of the US Senate in a punishing blow to President Barack Obama that will limit his political influence and curb his legislative agenda in his last two years in office.

"In our view, there is an incentive to find some common ground for the Republicans now that they have a majority in Congress, with their eyes on the next Presidential election in two years," said Susanne Galler, currency strategist at Jefferies. "We see the election result as dollar positive."

The dollar will take cues from the ADP private sector employment and non-manufacturing ISM data due later in the day. Both should offer insight into Friday's non-farm payroll employment report and any further signs of a labour recovery should bolster the dollar, traders said.

The dollar rose to 114.60 yen, its highest level since December 2007, and last traded at 114.50, up 0.9 per cent. The dollar index soared to 87.575, its highest in more than four years.

The yen, which hit a 30-year low against the Swiss franc, was also weighed down by comments from Bank of Japan Governor Haruhiko Kuroda, who said the central bank is ready to do more to hit its 2 per cent price goal and boost the economy.

Kuroda stressed the BOJ is determined to do whatever it takes to hit the inflation target in two years and vanquish nearly two decades of grinding deflation.

The yen and the euro's weakness saw the dollar index soar to 87.575, its highest in more than four years.

EURO'S STRUGGLES CONTINUE

The euro's struggles continued a day ahead of a European Central Bank meeting, hitting a two-year low against the Swiss franc.

The euro fell to a low of 1.2033 francs, not far from the Swiss central bank's floor of 1.20 francs imposed in September 2011.

Swiss inflation data showed a threat of deflation, and that is likely to put pressure on the Swiss National Bank (SNB) to intervene in the currency market to weaken the franc.

With Switzerland due to hold a referendum called by the People's Party on November 30 on whether to prevent the SNB offloading its gold reserves and oblige it to hold 20 per cent of its assets in gold, the currency is likely to come under additional pressure.

While polls indicate the Swiss will vote against the initiative, the risk of a 'Yes' vote is making markets nervous as it would give the SNB much less flexibility to buy foreign currency to defend the cap.

"The currency pair is rapidly approaching levels at which SNB intervention might become necessary again," said Esther Reichelt, currency strategist at Commerzbank. "In the run-up to the referendum on stricter rules for SNB gold reserves, that is likely to be a most unwelcome development for the SNB."

Against the dollar, the euro lost 0.5 per cent to $1.2485 after a short-covering rally on Tuesday fizzled out. The rally was prompted by a Reuters report that quoted ECB sources as saying colleagues of President Mario Draghi were unhappy with his management style.

The ECB meets on Thursday and is expected to hold off on fresh policy action despite more evidence of a struggling economy.

Data on Wednesday showed euro zone business growth picked up less than expected in October, while retail sales were much weaker than expected in September.

With the Bank of Japan unexpectedly easing policy last week, pushing the yen sharply lower, the onus is on the ECB to take further easing measures in a bid to cheapen the euro and boost growth and inflation.

(Reuters)