Dollar edges higher as investors look past US midterms to inflation data

The dollar advanced against several major currencies on Wednesday, as results so far for the midterm elections showed little evidence of a "red wave" resounding Republican victory that some expected, leaving investors to focus on upcoming inflation data.

Republicans made modest gains in US midterm elections but Democrats performed better than expected, leaving control of the US Congress and the future of President Joe Biden's agenda unclear on Wednesday morning.

A stronger showing by Republicans may have backed the idea of less fiscal support and potentially a lower peak in the Fed's terminal rate which would have been dollar negative, said Joe Manimbo, senior market analyst at Convera in Washington.

"Markets are now in the process of turning the page on politics and bracing for the inflation report tomorrow," Manimbo said.

Investors are waiting to see whether Thursday's US Consumer Price Index data will spur the Federal Reserve to continue to increase interest rates well into next year in a bid to curtail inflation, or whether they might be able to ease policy tightening.

The dollar has retreated from multi-decade highs in recent weeks as investors take profits following a months-long rally and as speculation grows that the Fed may be inching closer to pulling the curtain on its dollar-supporting interest rate hikes.

"The inflation report could be a good litmus test to gauge whether dollar sentiment has materially softened," Manimbo said.

The euro was 0.3 per cent lower against the dollar at $1.004, while the greenback was up 0.34 per cent against the yen.

Sterling fell 1.24% against the dollar to $1.1393, on pace to snap a three-day winning streak as investors fretted over the currency's inability to breach the $1.16 level the day before. Investors remain on edge ahead to British finance minister Jeremy Hunt's planned fiscal statement on Nov. 17, with indications there will be a squeeze on public spending and potentially higher taxes.

On Wednesday, the dollar was also supported by a mild bout of risk aversion ahead of Thursday's inflation report and a second day of weakness in cryptocurrencies as investors continued to fret about the stability of the sector and the financial health of major exchange FTX despite plans for a rescue deal from bigger rival Binnacle.

FTX's native token was down 15% at a two-year low of $4.609, while bitcoin was 5.74 per cent lower at $17,631, just off the two-year low of 17,038.32 touched on Tuesday.