US dollar steadies after falling on sharper risk appetite

London

THE US dollar stabilised on Tuesday after weakening against most currencies in earlier trade, as rising optimism that US lawmakers could agree on new stimulus to blunt the economic impact of the coronavirus dampened demand for safer assets.

Risk appetite also improved after US President Donald Trump left hospital and returned to the White House following treatment for Covid-19, a development viewed as reducing political uncertainties in the near term.

The lead taken by Mr Trump's presidential opponent Joe Biden in polls ahead of next month's election is also seen as negative for the US dollar.

"The increasing possibility of a "blue wave" (Democrat control of the White House and Congress) that would open the door for much-needed fiscal stimulus would be a welcome development for risk assets and could undermine the US dollar," said Lee Hardman, currency analyst at MUFG.

An index which measures the US dollar against a basket of currencies was last flat at 93.49. It has fallen around 1 per cent from a two-month high reached at the end of September, in contrast with US equity markets, which rose.

Euro/dollar was also flat at 1.1779. The British pound fell 0.1 per cent, to US$1.2967, though hopes of a Brexit deal kept the currency close to US$1.30. The US dollar was 0.2 per cent weaker versus the Japanese yen at 105.56.

US House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke by phone for about an hour on Monday on coronavirus economic relief and were preparing to talk again on Tuesday, continuing their recent flurry of activity working towards a deal on legislation.

White House Chief of Staff Mark Meadows said there was still potential for an agreement among lawmakers in Washington on more economic relief, and that Mr Trump was committed to getting the deal done.

Deutsche Bank currency analyst George Saravelos said the fiscal stimulus needed in the United States to fight the coronavirus-induced economic downturn will be negative for the US dollar because the Federal Reserve is planning to remain accommodative.

Among currencies that are not included in the dollar index, the offshore Chinese yuan weakened 0.1 per cent to 6.7280 per US dollar, having hit on Monday its highest since April last year.

The Australian dollar reversed the gains it made after the Reserve Bank of Australia kept interest rates on hold at 0.25 per cent, despite widespread expectations of a rate cut. It was last trading at 0.7150, down 0.4 per cent on the day. REUTERS