Dollar drops before Fed, after Alabama poll

The dollar dropped Wednesday awaiting the outcome of a Federal Reserve policy meeting and after a shock Democrat election win in a staunchly Republican senate district fuelled fears about US President Donald Trump's tax cut plans.

European stock markets were mostly lower after Tokyo posted losses, as investors also looked ahead to central bank policy announcements due Thursday from both the European Central Bank and the Bank of England.

Wall Street showed slight early gains a day after both the Dow and S&P 500 indices clocked up record highs.

The Fed is expected to announce a rate increase later Wednesday. But traders said the crucial event will be the statement from outgoing chair Janet Yellen, which Fed watchers will be dissecting for signals about more rate rises next year.

"US stocks are higher in early action, with the markets eyeing today's Fed monetary policy decision, as well as the ongoing tax reform reconciliation process and the Alabama Senate election result," analysts at the Charles Schwab brokerage said.

Bloomberg News reported Republican senators saying lawmakers in both houses of Congress were making progress in reconciling two tax reform bills and a final draft could be agreed imminently, which could allow it to go to a vote by next Tuesday.

- Tax bill doubts -

Bets on the market-friendly tax cuts being introduced helped drive a surge in global markets this year, and while equities have stuttered in recent weeks, analysts suggested more gains could come.

But Doug Jones's victory over the controversial Roy Moore in the usually deep-red Alabama senate vote cut the Republicans' majority to 51-49, meaning any wavering could see them fail to push the tax cuts through.

That sent the dollar falling Wednesday against the euro, yen and sterling.

"We could be in for a brush of bad news for the dollar with the latest Alabama election results shifting to Democrat Doug Jones," said Stephen Innes, head of Asia-Pacific trading at OANDA.

- Bitcoin retreats -

Elsewhere Wednesday, bitcoin dropped to well below $16,000 from $17,247.64 late in New York on Tuesday, according to Bloomberg, following this month's stratospheric rise to multiple records.

However, while there are warnings of a massive bubble bursting, some analysts say the digital unit could continue to rally, having already increased 20-fold this year.

"Bitcoin has fixed supply and growing demand," noted Greg McKenna, market strategist at AxiTrader.

"Think of it less as a currency and more as a stock which has a fixed supply of shares on issue and increasing demand. What happens then? Prices rise."

The unit debuted on a major exchange at the weekend, with futures contracts on the unit appearing on the Chicago Board Options Exchange, while it is also expected to list on the rival Chicago Mercantile Exchange next week.

Oil prices meanwhile jumped before US weekly energy inventory data due Wednesday.

- Key figures around 1435 GMT -

London - FTSE 100: FLAT at 7,502.29 points

Paris - CAC 40: DOWN 0.4 percent at 5,405.91

Frankfurt - DAX 30: DOWN 0.2 percent at 13,155.24

EURO STOXX 50: DOWN 0.3 percent at 3,588.31

New York - DOW: UP 0.2 percent at 24,541.26

Tokyo - Nikkei 225: DOWN 0.5 percent at 22,758.07 (close)

Hong Kong - Hang Seng: UP 1.5 percent at 29,222.10 (close)

Shanghai - Composite: UP 0.7 percent at 3,303.04 (close)

Euro/dollar: UP at $1.1761 from $1.1742 at 2200 GMT

Pound/dollar: UP at $1.3358 from $1.3316

Dollar/yen: DOWN at 113.01 yen from 113.56 yen

Oil - Brent North Sea: UP 2 cents at $63.37 per barrel

Oil - West Texas Intermediate: UP 25 cents at $57.39

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