By Karen Brettell and Amanda Cooper
(Reuters) -The U.S. dollar fell as U.S. voters headed to the polls on Tuesday, with the results of the elections likely to decide at least the near-term fate of the greenback.
Polls show a tight race between Republican presidential candidate Donald Trump and Democratic candidate Kamala Harris and the most extreme currency moves will occur if the party of the new president also wins control of Congress.
The dollar dipped even as betting markets including PredictIt and Polymarket showed rising odds of Trump winning the presidency.
“It’s possible we’re seeing a bit of position-squaring … my sense is that people are cautious,” said Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered Bank’s New York branch.
“Right now the mood seems to be going in favor of Trump,” Englander said. “On the other hand for most of October and into the beginning of November the Trump trades were stronger dollar and higher yields.”
Trump’s policies on immigration and tariffs are expected to stoke inflation, while tax cuts and deregulation may boost growth, and send longer-dated Treasury yields and the dollar higher.
A Democratic victory, conversely, could send the dollar lower as traders unwind more bets on Trump and on possible investor concern about the economic impact of higher taxes and more stringent business regulations.
So-called Trump trades have caused weakness in the euro, Mexican peso and Chinese yuan, with those regions all potentially facing new tariffs under a Trump presidency.
Volatility in these currency pairs has surged as the election approaches.
The one-week implied volatility for euro/dollar options was the highest since March 2023.
Implied volatility for China’s offshore yuan is at a record high, while that for dollar/Mexican peso is at the highest since March 2020.
The dollar index was last down 0.48% at 103.43 and reached 103.37, the lowest level since Oct. 16. The euro gained 0.48% to $1.0929 and got as high as $1.09368, the highest level since Oct. 11. The greenback dipped 0.44% to 151.46 Japanese yen and sank as low as 151.35, the lowest level since Oct. 23.
The Chinese yuan gained 0.13% in offshore trading to 7.103 per dollar while the Mexican peso rose 0.15% to 20.092.
Bitcoin gained 2.76% to $68,928. Trump has expressed views that are seen as more favorable for cryptocurrencies.
Traders are also focused on the Federal Reserve’s two-day meeting due to conclude on Thursday, when the U.S. central bank is expected to cut rates by 25 basis points. Investors will focus on any clues over whether the Fed could skip a cut in December.
A much stronger than expected jobs report for September led investors to pare back expectations on how many times the Fed is likely to cut rates. A much worse than anticipated report for October, however, has raised some doubts over this view.
“I’m sure that they’ve been looking at those data points and that absolutely abysmal headline number, so maybe they see something in it that markets don’t and we might get some clues for them on what we’re looking at in December,” said Helen Given, FX trader at Monex USA in Washington.
Recent hurricanes and labor strikes were partially responsible for October’s weak report.
Traders are now pricing 78% odds the Fed will also cut in December, according to the CME Group’s Fed Watch Tool.
Data on Tuesday showed that the U.S. services sector accelerated to a more than two-year high in October as employment rebounded strongly, suggesting that a near stall in job growth last month was an aberration.
The Bank of England is expected to cut rates by 25 basis points on Thursday, while the Riksbank is seen easing by 50 basis points and the Norges Bank is expected to stay on hold.
Sterling strengthened 0.46% to $1.3017.
Australia’s central bank held interest rates steady on Tuesday, as expected, and cautioned that policy would need to stay restrictive for some time yet.
The Australian dollar rose 0.74% to $0.6633.
(Reporting by Karen Brettell in New York and Amanda Cooper in LondonEditing by Bernadette Baum and Matthew Lewis)
