* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
By Tom Westbrook and Scott Murdoch
SINGAPORE/HONG KONG, Jan 6 (Reuters) - The U.S. dollar took a breather from its steady descent but could not entirely escape selling pressure in Asia on Wednesday, as traders looked to the outcome of a Senate election in Georgia to drive the next move in market sentiment.
The dollar had dropped through a major support level against the Japanese yen JPY= on Tuesday and it briefly extended lower to a new 10-month low of 102.60 on Wednesday before steadying.
The euro EUR= also pulled back from a 32-month peak of $1.2328 made early in the Asia session as counting pointed to a close result in a poll that determines control of the U.S. Senate. Australian and New Zealand dollars kept pressure on the greenback and hovered just below multi-year highs, while sterling GBP= softened very slightly to $1.3614. AUD/
Democrats will control both houses of Congress if they win both Georgia Senate seats up for contest.
The prospect of a Democrat agenda becoming law pushed bond yields up and U.S. stock futures down in anticipation of higher government borrowing, higher taxes and more tech regulation. MKTS/GLOB
However, currency markets have been more equivocal, with the likelihood of higher stimulus spending tempering the hit to sentiment and holding the dollar back from making gains.
"The dollar is sort of undecided," said Vishnu Varathan, chief economist at Mizuho Bank in Singapore, since investors are divided whether higher yields will be eventually eroded by higher inflation or flattered by lower inflation.
"My suspicion is that the immediate knee-jerk reaction would be a slightly stronger dollar," he said. "(But) I don't think this is a trade that markets will continue to chase...because I don't think sentiment will be in a tailspin."
Against a basket of currencies the dollar index USD= hit a fresh 2-1/2 year low on Wednesday before firming about 0.1% to 89.575. The benchmark 10-year Treasury yields US10YT=RR rose above 1% for the first time since March. US/
Cryptocurrency bitcoin BTC=BTSP , sometimes seen as a hedge against inflation, rose more than 4% and hit a record high of $35,879.
GEORGIA MORNING DUE
A clear outcome in Georgia could arrive as soon as Wednesday morning in the United States, although the tightness of the count suggests it may take longer.
The latest results put the Democrats a fraction ahead in one of the two Senate races and the two challengers neck-and-neck in the other.
Michael J. Kelly, PineBridge Investments' global head of multi assets in New York, though, said that even a sweep might not be enough to shift the greenback from a pronounced downtrend that has carried the dollar index 13% lower since March.
"Rising taxes and regulation will not cure today's weak dollar," he said over email.
"The global rotation out of U.S.-based assets into Europe and emerging would continue...soon we'll be back to focusing on the vaccine roll outs."
Soaring currencies in Asia, where the economic recovery has been most impressive, have caught an added boost from China's rising yuan, which increases China's purchasing power for commodities and other imports.
After a Tuesday surge, the yuan CNY= was steady at 6.4564 per dollar on Wednesday as profit taking and state-owned bank selling cooled excitement about a big jump in its onshore trading band. CNY/
The yuan gained 12% on the dollar since last May as China's economic rebound has led the world's pandemic recovery.
Currency bid prices at 1:17PM in Singapore (0517 GMT) Description
U.S. Close Pct Change
+102.8650 +102.6100 Euro/Yen
+126.4600 +126.1500 Dollar/Swiss
+0.8771 Sterling/Dollar GBP=D3
+1.3592 Dollar/Canadian CAD=D3
All spots FX= Tokyo spots AFX= Europe spots EFX= Volatilities FXVOL= Tokyo Forex market info from BOJ TKYFX
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