Investing.com – The U.S. dollar slipped slightly Tuesday, limping into what is likely to be a very close presidential election, the result of which could drive significant foreign exchange moves.

At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, fell 0.1% to 103.655, after overnight falling to the lowest since Oct. 21, compared with the highest levels since the end of July last week.

Dollar retreats as US election arrives

The greenback has been hit, in part, by an unwinding “Trump trade,” as recent polls showed Donald Trump and Kamala Harris set for a tight presidential race, with the majority of voting starting later Tuesday. 

In recent weeks, financial markets had leaned towards a win for Trump, whose tariff and immigration policies are considered inflationary by analysts, leading to gains for US yields and the dollar.

“With an exceptionally close US election upon us, plus the outcome likely to deliver a binary impact on currency markets, the FX options market is trading at a respectful level of volatility,” said analysts at ING, in a note.

“Given the run-up in the dollar in October, we think we need to see a Red Sweep for the dollar to push on much further. A Harris win would seem a benign outcome and prove a dollar negative.”

The also meets later this week, and markets have been positioning for another rate cut, this time by 25 basis points instead of the jumbo 50-basis point reduction seen in September.

Traders will be watching for any more cues from Fed Chair Jerome Powell on the bank’s plans to cut rates further, especially as recent data showed stickiness in U.S. inflation and resilience in the economy. 

But the labor market was also seen deteriorating, which could keep the Fed biased towards more easing.

Euro linked to US result

In Europe, traded 0.2% higher at 1.0893, after climbing to 1.0914 in the previous session for the first time since Oct. 15, with the euro benefiting from the dollar weakness.

Despite these gains, the euro is having to cope with regional economic weakness, with falling 0.9% on the month in September, as well as the political uncertainty surrounding the US election.

“For this week, expect the fall-out from US elections to dominate,” ING added. “Ultimately, a Trump win without the House could be the worst scenario for EUR/USD by late 2025, where global growth would be finding no insulation from US tax cuts and the ECB might be forced to cut rates deeper into accommodative territory.”

rose 0.2% to 1.2980, with the set to authorise another rate cut of 25 basis points on Thursday.

Aussie dollar gains after RBA meeting

rose slightly to 152.16, with the Japanese yen remaining close to its weakest level in three months, while climbed 0.1% to 7.1077, with focus turning to a meeting of the Standing Committee of the NPC that is expected to yield more cues on China’s plans for fiscal stimulus.

rose 0.5% to 0.6618, after the held policy steady on Tuesday, as widely expected.

RBA Governor Michele Bullock, however, took a more hawkish stance in her news conference, saying she still believed there are upside risks for inflation.

“The Australian dollar could be the big winner should Harris keep Trump out of the White House. Under such a scenario, the China tariff threat would be reduced considerably,” ING said.

Investing.com– Most Asian currencies kept to a tight range on Tuesday, while the dollar steadied from recent losses as focus remained squarely on a tight U.S. presidential race and an upcoming Federal Reserve meeting.

The Australian dollar firmed slightly after the Reserve Bank of Australia kept interest rates unchanged and warned that rates will remain high in the near-term due to concerns over sticky inflation. 

Among regional markets, focus also remained on an ongoing meeting of China’s National People’s Congress, where policymakers are widely expected to outline plans for more fiscal spending. 

Most Asian currencies were nursing steep losses through October amid growing speculation that Donald Trump will win a second term. But this trade came undone in recent sessions, offering regional markets some relief.

ticks higher after RBA 

The Australian dollar’s AUDUSD pair rose 0.1% after the RBA and said monetary policy will remain restrictive due to concerns over sticky inflation.

The move was widely expected by markets, given that the RBA has provided few cues that it plans to begin cutting interest rates.

While high for longer interest rates bode well for the Australian dollar, gains in the currency were stymied by the RBA flagging increased uncertainty over the Australian economy, with growth expected to slow further in the coming quarters. 

Still, the RBA is now expected to keep rates steady until at least early-2025 to combat sticky inflation, putting it in contrast to other major global central banks. 

Dollar steady with elections, Fed in focus

The and both rose 0.1% each in Asian trade, steadying from losses over the past two sessions.

The greenback was in part hit by an unwinding “Trump trade,” as recent polls showed Trump and Kamala Harris set for a tight presidential race. Voting is set to begin later on Tuesday. 

Focus later this week is also on a Fed meeting, where the central bank is widely expected to , a smaller cut than the 50 bps seen in September.

Traders will be watching for any more cues from Fed Chair Jerome Powell on the bank’s plans to cut rates further, especially as recent data showed stickiness in U.S. inflation and resilience in the economy. 

But the labor market was also seen deteriorating, which could keep the Fed biased towards more easing.

Broader Asian currencies were flat as anticipation of the U.S. elections and the Fed meeting kept traders on the sidelines. 

The Chinese yuan’s pair rose 0.1%, with focus remaining on an NPC meeting that is expected to yield more cues on China’s plans for fiscal stimulus.

The Japanese yen weakened and remained close to its weakest level in three months, with the pair rising 0.2%. 

The South Korean won’s pair rose 0.5% after data showed missed expectations in October, likely drawing more interest rate cuts from the Bank of Korea.

The Indian rupee’s pair steadied well above the 84 rupee level after hitting a record high earlier in the session.

By Karen Brettell, Medha Singh

NEW YORK (Reuters) -The U.S. dollar slipped on Monday as investors pulled out of Trump trades, which have benefited in recent weeks from speculation that Republican former President Donald Trump is more likely to win the presidential election on Tuesday against Democratic Vice President Kamala Harris.

“The Trump trade is unwinding,” said Karl Schamotta, chief market strategist at Corpay in Toronto. “We’ve seen a big pullback in the likelihood of a Republican sweep as implied by prediction markets and polling.”

Harris has gained in some polls though overall they show a tight race. 

Harris has also experienced improving momentum on election gambling sites and has a slight lead on PredictIt, while Polymarket continues to show Trump as favorite.

Trump’s policies on tariffs and immigration are seen as likely stoking inflation, which would send longer-dated U.S. Treasury yields and the dollar higher.

At the same time, “tariffs and just sheer uncertainty is expected to harm the outlook for other currencies,” Schamotta said.

The currency market is likely to see bigger moves after the election if the party of the new president also controls Congress.

“A Red Wave (favoring Republicans) would kick-start a sizeable USD rally. It would rekindle memories of US Exceptionalism, anchored by tariffs, tax cuts, deregulation and negative impacts on the outlook for EZ and China,” analysts at TD Securities said in a note.

“A Blue Wave (favoring Democrats) is the worst outcome for the USD as markets unwind Trump trades and hedges. The second order effect is that a Blue Wave could start to undermine the USD, as the potential for higher taxes and more regulation starts to see US equities underperform the rest of world,” they added.

The was last down 0.05% at 103.89. The euro gained 0.41% to $1.0878. The greenback weakened 0.54% to 152.16 Japanese yen.

The one-week implied volatility options for euro/dollar were at the highest since March 2023.

The offshore also gained 0.42% to 7.11 per dollar per dollar while the Mexican peso strengthened 0.79% to 20.129. 

These currencies had weakened in recent weeks on expectations they would be hurt by new tariffs under a Trump presidency.

Implied volatility for the yuan is at a record high, while that for dollar/Mexican peso is at the highest since April 2020.

also fell 2.08% to $67,758.

Trump is viewed by analysts as enacting more favorable policies for cryptocurrencies than Harris.

The Federal Reserve is expected to cut rates by 25 basis points at the conclusion of its two-day meeting on Thursday, and investors will focus on any clues that the U.S. central bank could skip a cut in December.

October’s jobs report showed that employers added far fewer jobs than economists had expected, which has raised questions over the degree of softness in the labor market. 

Recent hurricanes and labor strikes were partially responsible for the weak report.

It came after much stronger than expected jobs gains in September, which led investors to price for fewer Fed rate cuts.

Traders are now pricing 82% odds that the Fed will also cut in December, according to the CME Group’s Fed Watch Tool.

The Bank of England meets on Thursday and is expected to cut by 25 basis points, while the Riksbank is seen easing by 50 basis points and the Norges Bank is expected to stay on hold.

The BoE’s decision has been complicated by a sharp selloff in gilts following the Labour government’s budget last week, which also dragged the pound lower.

The pound was last up 0.2% at $1.2952.

The Reserve Bank of Australia is expected to hold rates steady at its meeting on Tuesday.

The strengthened 0.43% to $0.6587.