The dollar gained against the euro on speculation Barack Obama's sweeping victory in the U.S. presidential election will help him push through policies needed to revive the world's biggest economy.
The currency also rose against the pound and the Australian dollar as Obama won at least 349 electoral votes, more than the 270 needed, and Democrats increased their majority in Congress. The euro lost more than 2 percent versus the yen after European Central Bank member Juergen Stark signaled support for interest- rate cuts to bolster the region's shrinking economy. The single European currency also dropped as regional stocks fell.
``Obama's clear win and the Democrats' gains in Congress are dollar positive, no doubt about it,'' said Michael Klawitter, a currency strategist at Dresdner Kleinwort in Frankfurt. ``Interest-rate spreads will move strongly in favor of the U.S., where the scope for aggressive cuts is limited.''
The yen also rose as stock-market losses in Europe made it less attractive to buy overseas assets using funds from Japan. The Dow Jones Stoxx 600 Index lost 2.2 percent and U.S. stock futures declined. Yesterday, U.S. shares posted their biggest presidential election-day rally in 24 years.
Any yen weakness ``is likely to prove both limited and short-lived as the onset of potentially the worst global recession since the early 1980s continues to drive further dollar and yen supportive repatriation flows,'' Lee Hardman, a currency strategist in London at Bank of Tokyo-Mitsubishi Ltd., wrote in a client note today.
Gains in the dollar may be limited by speculation the U.S. economy lost jobs for the 10th consecutive month. Nonfarm payrolls shrank by 200,000 in October, according to a survey before the report on Nov. 7.
``We're seeing a congratulatory bounce in the dollar,'' said Kengo Suzuki, currency strategist in Tokyo at Shinko Securities Co. ``It's not likely to continue. The U.S. economy is in a weak state, and there all still a lot of questions about what type of policies Obama will put into place.''
The 15-nation euro fell against the yen after Stark told the Financial Times Deutschland in an interview that ``we're ready to use all instruments at our disposal and the main instrument is interest-rate policy.''
The ECB will lower its main refinancing rate by a half- percentage point to 3.25 percent tomorrow, according to economists.
``The market is expecting the ECB to be dovish tomorrow,'' said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the world's biggest foreign-exchange trader. ``The ECB has more scope to cut rates and from that perspective, you'd expect negative developments for the euro.'' The euro may trade at about $1.20 by year-end.
The yen's real effective exchange rate, a measure of the currency's value against those of Japan's trading partners after adjustments for price trends, rose 11.2 percent in October from the previous month, the biggest gain on record, Bank of Japan data showed today. The index was at 111.1, the highest since August 2005.
``The yen is the strongest currency,'' said Yuji Kameoka, senior economist and currency analyst at Daiwa Institute of Research in Tokyo. ``A global economic slowdown and declining asset prices will lead to further yen gains.''
The pound also fell as an industry report showed services industries contracted in October, adding to evidence the economy is in a recession. The Bank of England will cut its main interest rate by a half-percentage point to 4 percent tomorrow, according to the median forecast of 60 economists surveyed by Bloomberg News.