The dollar fell on Tuesday as traders settled positions ahead of the U.S. presidential election after recent opinion polls weighed on some market bets on a victory for Republican Donald Trump.
Democrat Kamala Harris also saw her odds improve on election gambling sites and had a slight lead on PredictIt yesterday, though Polymarket continued to show Trump as the favorite.
In recent weeks, financial markets and some betting platforms have been strongly biased toward a win for Trump, whose tariff and immigration policies analysts view as inflationary, sending U.S. Treasury yields higher and the dollar higher, Reuters reported.
But the US currency fell yesterday by about 0.76% against the euro to a three-week low after a weekend poll showed Harris taking a surprise lead in Iowa, a traditional Republican stronghold. Overall, opinion polls still show a close race.
The dollar index, which measures the greenback against six major currencies including the euro, was slightly lower at 103.89, after falling to 103.67 on Monday for the first time since Oct. 21. Last week, it rose to its highest level since late July at 104.63.
The euro rose to $1.0879, after rising to $1.09145 in the previous session for the first time since October 15.
The pound rose slightly to $1.2959.
Against the yen, the dollar traded at 152.34 after falling to 151.54 overnight, its lowest level in a week.
“We think financial markets are now positioned for a Harris win,” said Carol Kong, a currency strategist at the Commonwealth Bank of Australia.
She added: “Thus, the US dollar could decline modestly by 1% to 2% this week if Vice President Harris wins, and then rise significantly if (former) President Trump wins.”
Any delays and/or disputes over vote counting could also increase currency volatility this week.
Overnight implied volatility options on the euro/dollar pair rose to their highest levels since November 2016 on Tuesday, as did the dollar/Mexican peso pair. Mexico is expected to be among the countries most affected by any protectionist policies pursued by Trump.
Bitcoin rose 2.2% to around $68,542, after falling to a one-week low of $66,776.19 yesterday.
Analysts see Trump as enacting more crypto-friendly policies than Harris.
The Federal Reserve is expected to cut interest rates by 25 basis points on Thursday.
Markets will be focused on any signs that the U.S. central bank may abandon its December interest rate cut, after last week's monthly jobs report showed employers added far fewer jobs than economists had expected in October, raising questions about the extent of weakness in the labor market.
The Bank of England is also expected to cut interest rates by 25 basis points on Thursday, while the Swedish Riksbank is expected to ease rates by 50 basis points and the Norwegian Riksbank is set to leave rates unchanged.
The Australian dollar rose 0.21% to $0.6600, stabilizing after falling to its weakest level since August 8 at $0.6537.
