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The dollar rose to a seven-year
high against the Japanese yen on Wednesday after a victory by
Republicans in the United States' mid-term elections raised
hopes for an easing of political gridlock in Washington,
boosting sentiment for riskier assets.

The euro's struggles continued, though, a day ahead of a
European Central Bank meeting, and it hit a two-year low against
the Swiss franc. The euro fell to a low of 1.2033 francs
, not far from the Swiss central bank's floor of 1.20
francs imposed on Sept. 2011.

Swiss inflation data showed a growing threat of deflation,
and that is likely to put pressure on the SNB to intervene in
the currency market to weaken the franc.

With a referendum on Nov. 30 that is aimed at preventing the
Swiss National Bank from offloading its gold holdings and
obliging it to hold at least 20 percent of its assets in gold,
speculators are likely to target the cap imposed by the SNB to
prevent the Swiss franc from appreciating.

The SNB opposes the "Save our Swiss gold" initiative as it
would significantly curb its ability to shape monetary policy.
So far, polls indicate that the initiative is unlikely to get
majority support.

"The currency pair is rapidly approaching levels at which
SNB interventions might become necessary again," said Esther
Reichelt, currency strategist at Commerzbank. "In the immediate
run-up to the referendum on stricter rules for SNB gold
reserves, that is likely to be a most unwelcome development for
the SNB."

Against the dollar, the euro was down 0.2 percent at $1.2520
after a short-covering rally witnessed on Tuesday fizzled
out. The rally was prompted by a Reuters report that quoted
European Central Bank sources as saying colleagues of ECB
president Mario Draghi were unhappy with his management style.

The ECB meets on Thursday and is expected to hold off on
fresh policy action. But with the Bank of Japan
surprisingly easing policy last week and pushing the yen sharply
lower, the onus is on the ECB to take further easing measures in
a bid to cheapen the euro and boost growth and inflation.

DOLLAR HIGHER POST ELECTION

The dollar rose as high as 114.55 yen, its highest
level since December 2007, and last traded at 114.40, up 0.7
percent from late U.S. levels.

The yen was also weighed down by comments from Bank of Japan
Governor Haruhiko Kuroda, who said the central bank is ready to
do more to hit its 2 percent price goal and boost the economy.
Kuroda stressed the BOJ is determined to do whatever it takes to
hit the inflation target in two years and vanquish nearly two
decades of grinding deflation.

The dollar's index against a basket of six currencies gained
0.2 percent to 87.322 to edge near a four-year peak of
87.406 set on Monday.

"Although the election results were not a complete surprise,
the risk-on mood grew following news that Republicans enjoyed
sweeping victories," said Shinichiro Kadota, chief FX strategist
at Barclays Bank in Tokyo.

Republicans rode a wave of voter discontent to seize control
of the U.S. Senate in a punishing blow to President Barack Obama
that will limit his political influence and curb his legislative
agenda in his last two years in office.

As risk sentiment was boosted, the yen weakened against
other currencies, such as the euro, which rose to a seven-month
high of 143.44 yen.

(Additional reporting by Tomo Uetake in Tokyo; Editing by
Dominic Evans)