CURRENCIES: Dollar Slips After Democrat's Senate Win In Alabama Sparks Concerns About Tax Bill

By Sara Sjolin, MarketWatch Features Dow Jones Newswires

Fed rate decision is on deck for 2 p.m. Eastern Time

Continue Reading Below

The dollar moved slightly lower on Wednesday, after a Democrat defeated Republican Roy Moore in Alabama's U.S. Senate election. Analysts say the win in a staunchly Republican state could be a precursor for American politics in 2018 and has the potential to scuttle the highly anticipated tax bill.

Traders were also looking ahead to the Federal Reserve decision later in the day, which is expected to deliver an interest-rate increase. At the conclusion of Fed's two-day meeting, Chairwoman Janet Yellen will deliver her final press conference as boss of the central bank.

What are currencies doing?

The ICE U.S. Dollar Index slipped 0.1% to 94.029, falling against most other major currencies. On Tuesday, the greenback advanced 0.3% (http://www.marketwatch.com/story/dollar-bounces-higher-on-ppi-data-2017-12-12) on the back of stronger producer-price inflation data.

The euro rose to $1.1749 on Wednesday, up slightly from $1.1743 late Tuesday in New York.

Continue Reading Below

The pound rose to $1.3340, compared with $1.3317 on Tuesday.

The Japanese yen also climbed against the greenback, with the dollar buying Yen113.34 compared with Yen113.54 on Tuesday.

What is driving the market?

The dollar weakness came after Democrat Doug Jones won Alabama's Senate election (http://www.marketwatch.com/story/doug-jones-defeats-roy-moore-in-contentious-alabama-senate-election-2017-12-12) Tuesday night, defeating controversial Republican Roy Moore and dealing what is seen as a stinging rebuke to President Donald Trump.

The Democrat's victory will shrink the Republican Senate majority, leaving the balance at 51-49. That has raised concerns that it will be harder for the Republicans to get major pieces of legislation, such as the tax bill, passed.

Traders were also waiting for the Federal Reserve's interest rate decision, due at 2 p.m. Eastern Time. Traders are widely expecting the central bank to raise rates by 25 basis points (http://www.marketwatch.com/story/heres-why-the-fed-will-hike-interest-rates-2017-12-11) and will look for any hints on the pace of tightening next year.

See: How to make money in the stock market from the Fed's next move (http://www.marketwatch.com/story/how-to-make-money-from-the-feds-next-move-2017-12-12)

And check out:What bond and currency traders are looking for from Yellen's Fed decision (http://www.marketwatch.com/story/what-bond-and-currency-traders-are-looking-for-from-yellens-fed-decision-2017-12-11)

Yellen will hold her final press conference as the central-bank's chief at 2:30 p.m. Jerome Powell has been selected to pick up the reins as chairman in 2018.

Read:There will be competition at the Fed to be in Jerome Powell's ear (http://www.marketwatch.com/story/there-will-be-competition-at-the-fed-to-be-in-jerome-powells-ear-2017-12-08)

What are strategists saying?

"The initial focus for financial markets will be on the knock-on effects [the Alabama election] has for a tax bill being passed through the Senate ... With the likes of Senators Rand Paul and Susan Collins still not fully on board with the current package, we still believe that there are major political hurdles to be cleared to get any tax bill over the line, " said Viraj Patel, strategist at ING, in a note.

"Looking ahead, we wouldn't underestimate the broader political woes this may have for the U.S. dollar in a midterm election year; a more uncertain U.S. political backdrop -- coupled with better growth opportunities elsewhere -- is partly why we think investors have stronger incentives to shy away from U.S. assets in 2018," he added.

In terms of the Fed decision, Konstantinos Anthis, researcher at ADS Securities, said there's scope for a more cautious tone coming out of the meeting today.

"If Janet Yellen and her colleagues offer a cautious outlook on the economy and acknowledge the challenges the economy is facing, the dollar could sell off today given that the rate hike decision itself is already priced in by market participants," he said.

(END) Dow Jones Newswires

December 13, 2017 04:53 ET (09:53 GMT)