Dollar hits six year high against yen; gains against all G-10 rivals

The U.S. dollar rose to a fresh seven-year high against the yen Wednesday morning, and rallied against every G-10 rivals, as investors rushed to buy the dollar, believing that Republican rule in Congress could translate to improved economic growth in the U.S.

The dollar rallied through the Asian trading day as a Republican victory appeared increasingly certain. Investors bet that a Congressional leadership change could influence the Fed to expedite its expected interest rate increases.

Republicans outperformed even the rosiest prediction and gained a majority by picking up at least seven U.S. Senate seats. They also widened their majority in the House of Representatives, and picked up several governorships.

“Part of the reaction in tonight’s trade was simply a knee jerk move as markets often assume that Republican rule will be more business friendly and will help the US economy grow,” said Boris Schlossberg, managing director of FX Strategy at BK Asset Management. “However today’s rally in the dollar may be also a bet that the change in legislative leadership would expedite the policy actions of the Fed towards interest rate normalization.”

The dollar  traded at 114.68 yen Wednesday morning, off its high of ¥114.8340. It traded at ¥113.69 Tuesday afternoon.

Large gains against the euro pushed the ICE U.S. Dollar Index to a fresh four-year high. The index  , a measure of the dollar’s strength against a basket of six currencies, was up 0.64% to 87.5340. The euro  traded at $1.2467 early Wednesday, its lowest level since August 2012, compared to $1.2548 Tuesday.

The pound  fell to its lowest point against the greenback in a year, falling as low as $1.5869 Wednesday morning before recovering slightly. It last traded at $1.5933, compared to $1.6000 Tuesday.