LONDON (Reuters) – The dollar hit its lowest level in nearly three years on Wednesday with markets pricing in a Democrat win in the U.S. Senate election in Georgia that would pave the way for a larger fiscal stimulus package and fuel currency market risk appetite.

FILE PHOTO: A U.S. five dollar note is seen in this illustration photo June 1, 2017. REUTERS/Thomas White/Illustration

Democrats had won one hotly contested U.S. Senate race in Georgia and pulled ahead in the second by 0900 GMT, edging closer to control of the chamber.

Analysts generally assume a Democrat-controlled Senate would be positive for economic growth globally and thus for most riskier assets, but negative for bonds and the dollar as the U.S. budget and trade deficits swell even further.

The dollar index hit its lowest since April 2018 as European markets opened, having slipped gradually overnight. At 0901 GMT it was at 89.387, down 0.1% on the day.

The dollar also fell to its lowest in six years versus the Swiss franc, at 0.8761.

The euro was up 0.2% at $1.2326, having rose past major resistance to hit as high as $1.2346 in early European trading.

“We had not assumed Democrat victories in these elections and hence some revisions weaker to the extent of USD weakness we expect this year may be warranted,” Derek Halpenny, head of research at MUFG, wrote in a note to clients.

“We currently tentatively are targeting 1.2800 for EUR/USD by year-end,” he added.

But Elsa Lignos, global head of FX strategy at RBC Capital Markets said that she disagreed with the market consensus that U.S. fiscal stimulus is “risk-on” and therefore dollar-negative.

Instead, she said, big infrastructure spending in the U.S. would strengthen the dollar, particular against non-commodity producing developed market currencies.

Riskier currencies also surged, with the New Zealand dollar and Australian dollar hitting their highest since 2018 and holding onto these gains in the European session.

The move was helped by a range of surveys overnight showing that manufacturing globally had proved resilient in December, despite escalating virus cases.

A decisive outcome in Georgia could arrive as soon as Wednesday morning in the United States, although the tightness of the count suggests an official result may take longer.

“The current quiet on the FX market might just be the quiet before the storm,” wrote Ulrich Leuchtmann, head of FX and commodity research at Commerzbank. He said that market participants will have learned from the presidential election in November that it can take a few days to get the final result.

“USD side is not going to provide any momentum until the result is sufficiently clear,” he said.

“As soon as first market participants begin betting on one side or the other (Republican USD positive or Democrat USD negative) others are likely to jump on the bandwaggon.”

Graphic: Dollar index

Elsewhere, U.S. President Donald Trump escalated tensions with Beijing by signing an executive order banning U.S. transactions with eight Chinese software applications.

After surging on Monday and Tuesday, the yuan softened, after China’s central bank appeared to signal a preference for a more moderate pace of intervention.

The yuan has gained around 10% on the dollar since last May as China’s economic rebound has led the world’s pandemic recovery.

Bitcoin traded above $35,000 for the first time, rising to $35,879 in the Asian session and extending a rally that has seen it rise more the 800% since mid-March.

These gains waned as European markets opened, with Bitcoin at $34,156.11 at 0915 GMT.

Reporting by Elizabeth Howcroft; Editing by Alexander Smith