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Republican election gains send dollar to seven-year high versus yen

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. REUTERS/Kim Hong-Ji/Files

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013.

Sweeping Republican party wins in U.S. mid-term elections pushed the dollar to a seven-year high against the yen and lifted U.S. stock futures on Wednesday, as more soft data from China left oil at its lowest in four years.

Republicans rode a wave of voter discontent to secure control of the U.S. Senate and strengthen their grip on the House of Representatives in a punishing blow to President Barack Obama that will limit his power in his last two years in office.

For financial markets, the likelihood that that will curb the legislative agenda was seen as positive. Similar situations in the past have often sparked U.S. stock market rallies.

Early futures prices ESc1 pointed to a 0.3 to 0.4 percent gain for Wall Street when trading opens, while the dollar rose to as high as 114.59 yen JPY=, its highest level since December 2007.

"We all saw this result coming but the main thing is what the two sides decide, whether they want to co-operate and compromise (on policy) or whether they are going to go back to the trenches," said Philip Marey a U.S.-focused economist at Rabobank.

"They (Republicans) have the incentive to be constructive to show to voters that they can rule the country ... If they manage to cooperate it could boost the economy, especially if things can be done on areas like infrastructure."

Europe's main stock markets .FTEU3 also opened on the front foot, rising 0.5-0.9 percent as some encouraging company earnings from Britain to Sweden helped the region shake off the downbeat Chinese purchasing managers' survey that had dominated Asian trading.

Growth in China's services sector weakened further in October as new business cooled, reinforcing signs of a gradual economic slowdown that could prod the government to unveil fresh stimulus measures.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.5 percent, although Tokyo rose as the yen continued to weaken.

Brent oil LCOc1 fell toward $80 a barrel as demand worries mounted after the China data. [O/R]

Other global growth-sensitive commodities took a hit as well.

Copper CMCU3 fell to its lowest in a fortnight and gold XAU= slid for a fifth session in six, tumbling to a four-year low below $1,150 an ounce as a strong dollar kept investors away from the safe-haven asset.

"We had expected this," said Avtar Sandu, senior manager for commodities at Phillip Futures of the Chinese data. "The market is already soft for Brent and the Chinese data is not going to help although the numbers are not a surprise."

DOLLAR REBOUNDS

The euro's struggles also continued a day ahead of a European Central Bank meeting, hitting a two-year low against the Swiss franc and sliding back toward its recent trough against the dollar. EUR=

As well as bets that feeble euro zone growth and inflation will prompt more action from the ECB in the coming months, sentiment on the shared currency was rattled by a Reuters story saying ECB President Mario Draghi's leadership style was disgruntling some of the national central banks.

"We do not expect further easing at Thursday’s ECB meeting but it may give more insight into its new asset purchase programs," strategists at Barclays said.

The dollar was last buying 114.47 yen JPY=, up 0.7 percent at a fresh seven-year peak. The euro was worth just under $1.25.

The safe-haven appeal of U.S. Treasury notes left the benchmark 10-year yield US10YT=RR hovering at 2.344 percent in early European trading, while German and other European bond markets were largely quiet.

 

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