Dollar licks wounds as tight US elections dampen hopes for quick stimulus

TOKYO (Reuters) – The dollar fueled losses against many currencies on Friday as the controversial US presidential election diminished hopes of big stimulus to support the economy anytime soon.

Investors are betting Democrat Joe Biden will become the next president, but Republicans will retain control of the Senate, which will make it difficult for Democrats to approve the higher fiscal spending they pushed.

Biden maintains an advantage over President Donald Trump, but some major states continue to count votes and Trump is mounting legal challenges for counting votes, so there is still a high degree of uncertainty.

A sharp decline in long-term Treasury yields due to expectations of lower fiscal spending, combined with a rally in equities and other risk assets, has placed the dollar under constant selling pressure that is likely to continue.

“There is a green light for dollar selling to resume, reflecting past declines in real interest rates,” said Ray Attrill, head of foreign exchange strategy at the National Australia Bank in Sydney.

“There is an argument that the US Federal Reserve will have to support risk assets. The pandemic is still going in the wrong direction. “

The dollar was trading at 103.59 yen in Asia on Friday, close to an eight-month low.

Against the euro, the dollar was trading at $ 1.1816 after falling 0.87% in the previous session.

The British pound was trading at $ 1.3131, maintaining a strong 1.23% gain since Thursday.

The dollar index against a basket of six major currencies stood at 92.654, close to a two-week low.

Investors also look forward to the release of US non-farm payrolls later on Friday, which should show a slight slowdown in job creation.

Concerns about the US economy are growing, which is reason to expect the dollar’s decline to continue into the next year, according to some analysts.

In addition to the uncertainty surrounding the presidential election, new coronavirus cases are climbing to record highs in several states, which could hold back US economic activity.

Elsewhere, the Aussie dollar fell against the greenback in Asian trading after the country’s central bank said it was ready to expand bond purchases if needed to support the economy.

The falls in the Aussie also dragged the New Zealand dollar lower.