TOKYO - The dollar flirted with three-week lows on Tuesday as investors stuck to hopes that there will be large U.S. fiscal stimulus after the Nov. 3 election to shore up a pandemic-hit economy, supporting riskier currencies.
The dollar index stood at 93.036, just above Friday’s near-three-week low of 92.997. The euro traded at $1.1841, having gained 0.60% on Monday.
“It seems there is a strong optimism that eventually there will be stimulus. It is hard to argue against fiscal expansion given the coronavirus epidemic is almost like a natural disaster,” said Makoto Noji, chief currency and foreign bond strategist at SMBC Nikko Securities.
While markets are getting sceptical about the chances of having a bipartisan package before the election, a widening lead by Democratic presidential candidate Joe Biden over President Donald Trump is leading investors to expect big stimulus after the election.
A Biden victory is also seen as negative for the dollar partly because his pledge to hike corporate tax would reduce returns from investments in the United States.
Thus the dollar also weakened against currencies that are deemed “safer” - those that tend to have small or inverse relations with risk sentiment - such as the yen and the Swiss franc.
The yen strengthened to 105.34 per dollar while the Swiss franc traded at 0.9102 to the dollar, near its highest in three weeks.
Sterling traded above the key $1.30 level as hopes for a Brexit deal offset concerns about pressure on the economy from new coronavirus restrictions British Prime Minister Boris Johnson has announced.
The pound stood near its strongest levels in two weeks against the euro, which changed hands at 0.9043 pound.
On the other hand, the Australian dollar dropped 0.4% to $0.7183, not helped by media reports China has stopped taking shipments of Australian coal.
The offshore Chinese yuan nursed losses after China’s central bank removed reserve requirement ratio for financial institutions when conducting some foreign exchange forwards trading, a move seen as a bid to curb recent yuan appreciation.
The yuan last stood at 6.7626 to the dollar, off Friday’s 1 1/2-year high of 6.6785.