Dollar Shaky as Democrats Seize Back House

Posted 08 November 2006 @ 10:03 am EET     Print     Reprint     E-Mail     Comments

TOKYO (AP) - The dollar has wobbled in Asian trade as traders fretted that a Democratic victory in the US House of Representatives could usher in less market friendly economic policies, dealers said.

The dollar fell to 117.55 yen in Tokyo afternoon trade from 117.68 in New York late Tuesday. The euro was at 1.2776 dollars after 1.2773 and 150.25 yen from 150.30.

Traders were jittery about changes in US economic policy after Democrats apparently seized power in the lower chamber for the first time since 1994, although they still faced an uphill fight to take control of the Senate.

"No one wants to hold the dollar if the Democrats control US economic policies," said Shinji Kobayashi, currency analyst at Resona Bank.

Democrats picked up 18 seats in the House, according to an AFP count, three more than they needed to gain control. Even so dealers noted that the market reaction had been relatively limited.

"Although media reports say the Democrats are likely to win a majority the dollar has not fallen as sharply as I had expected," said Kobayashi. "But I guess the dollar will decline further in the coming day or two."

Some analysts see a potential for political gridlock with Democrats in control of one or both chambers.

"If Democrats win a majority either in the House or Senate, this will mean that the US economic policies will be restrained and prompt traders to sell the dollar," said Tohru Sasaki, chief forex strategist at JPMorgan Chase Bank.

Democrats are traditionally seen as less friendly to business but some analysts say investors may actually welcome Democratic gains, believing the opposition party would check spending by Republicans.

Traders were also looking ahead to US trade figures on the trade balance and consumer sentiment data due out Thursday, as well as Japanese data on machinery orders for September on Friday.

The yen had firmed against the dollar Tuesday after Bank of Japan governor Toshihiko Fukui said that the central bank would raise interest rates pre-emptively to control inflation, dealers said.

The euro meanwhile was hobbled by data showing an unexpected monthly fall in eurozone retail sales in September and a fall in German industrial output.

The dollar fell to 32.8110 Taiwan dollars from 32.827 on Tuesday, to 9,112 Indonesian rupiah from 9,117 and to 1.5600 Singapore dollars from 1.5620.

The dollar rose to 49.955 Philippine pesos from 49.83 and to 36.64 Thai baht from 36.63.