US dollar set for biggest 3-day drop since July

London

THE US dollar's losses deepened on Thursday, setting it on course for its biggest three-day losing streak in more than three months, as traders braced for the outcome of a US central bank policy meeting that might hint at more stimulus.

Traders also unwound some of their safe-haven demand for the greenback as Democrat Joe Biden moved closer to victory in the US presidential race, with election officials tallying votes in the handful of states that will determine the outcome.

But his party is falling short of expectations in Congressional elections, with the Senate looking increasingly likely to stay in Republican hands, making it hard to implement a big stimulus package.

Financial markets were braced for days or even weeks of uncertainty, as incumbent President Donald Trump has opened a multi-pronged attack on vote counts in several states by pursuing lawsuits and a recount, which is widely seen as US dollar negative.

Against a basket of its rivals, the US dollar fell 0.5 per cent to 92.93, its lowest level in more than a week. On a cumulative basis, the greenback has weakened 1.2 per cent, its biggest three-day fall since late July, Refinitiv data showed.

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The US dollar's weakness was also compounded by a broad-based decline in US Treasury yields with spreads between benchmark 10- and two-year maturity debt tightening to its narrowest levels in more than three weeks.

With the final result of US elections still uncertain, the Fed is expected to stick closely to its last statement, and repeat its pledge to do whatever it can to help the economy through the coronavirus-triggered recession.

Some of the biggest gains were seen in currencies which had borne the brunt of Mr Trump's protectionist policies in recent years, with the yuan briefly rising to a more than two-year high versus the greenback.

The euro hopped above the US$1.18 mark, up 0.6 per cent from the previous session as some investors bet on a Biden victory.

"The euro was flying around in the last couple of days, to and fro, but in the end it does seem like the euro tends to be stronger under a Biden scenario," said John Vail, chief global strategist at Nikko Asset Management.

The British pound broke above US$1.30 after the central bank ramped up its bond purchase plan.

Broader currency market volatility gauges declined with a widely-watched index falling to more than three-month lows. REUTERS