US dollar trims gains, riskier currencies fall

London

THE US dollar gave up some gains and riskier currencies remained on the back foot, as markets waited for the US election outcome after early results indicated a tight race, surprising investors who had bet on a decisive win for Democrat Joe Biden.

US President Donald Trump won in the key battleground states of Florida, Ohio and Texas, dashing market hopes for a clear result.

Investors waited to see whether Mr Trump would retain the Rust Belt states, Michigan, Wisconsin and Pennsylvania, that sent him to the White House in 2016.

The US dollar rose as much as 1.2 per cent overnight to hit more than one-month highs versus its rivals, and riskier currencies such as the yuan and Australian dollar fell more than 1 per cent each.

But the US dollar gave back some of its gains to trade up 0.7 per cent as the race tightened.

"The expected 'blue sweep' that the market was anticipating has not materialised," said Neil Jones, head of foreign exchange (FX) sales for financial institutions at Mizuho.

A Biden victory had been expected to boost prospects for a large US fiscal aid package and lessen trade war tensions, causing the US dollar to weaken sharply. It fell to a one-week low on Tuesday on expectations of a Biden win.

But an uncertain election result heightens the risk of a contested outcome, which could include lengthy legal battles, prompting investors to seek safer assets.

John Goldie, an FX dealer at Argentex, said that the uncertainty about the result left markets in wait-and-see mode.

"Talking to clients, we had some expectations of some bigger moves in either direction," he said.

The rising likelihood of a Trump re-election hurt currencies that have been hardest hit by his trade policies, such as the yuan, which was down 0.7 per cent on the day.

The Australian dollar also took a hit, down 1.2 per cent at 0.7077. Sterling fell around 1 per cent.

The euro was down 0.4 per cent at US$1.1671, after having earlier tumbled to its lowest in more than three months.

Overnight volatility gauges for euro-dollar and US dollar-yen fell however. They had surged to their highest levels since March earlier this week.

Market participants said that this was due to a lack of information, with investors not initiating new trades at this stage. REUTERS