By Karen Brettell
NEW YORK, Oct 7 (Reuters) – The dollar dipped on Wednesday as risk appetite improved on hopes of at least some new fiscal stimulus before the November 3 U.S. Presidential election, and as investors priced for the prospect of a Democrat victory next month.
President Donald Trump said late on Tuesday that Congress should quickly extend $25 billion in new payroll assistance to U.S. passenger airlines furloughing thousands of workers as air travel remains down sharply amid the coronavirus pandemic.
Trump had earlier on Tuesday abruptly ended talks with Democrats on an economic aid package, which sent stock markets tumbling and boosted demand for the dollar.
“Those comments about having some options regarding putting some of the stimulus plans back in action certainly has buoyed the market and injected more optimism, and you can see that’s why the dollar’s weaker today, it’s really a ‘risk on’ mentality,” said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.
Top White House officials on Wednesday downplayed the possibility of more coronavirus relief. Pelosi, however, did ask Treasury Secretary Steven Mnuchin to review a standalone bill for $25 billion in aid to airlines.
The dollar index against a basket of major currencies =USD fell 0.19% on Wednesday to 93.64. It reached a two-week low of 93.33 on Tuesday, before Trump’s comments.
The greenback gained 0.40% against the safe haven Japanese yen JPY= to 106.04 yen.
The euro EUR= rose 0.26% to $1.1765.
The greenback has also weakened on bets that Democratic presidential candidate Joe Biden will win as election polls show him taking a widening lead, and on growing expectations that Democrats could also take control of the Senate.
“FX markets are starting to, at the margin, price in not only a Biden presidency but also a blue sweep as well,” said Mazen Issa, senior FX strategist at TD Securities in New York.
Investors have been building short bets on the U.S. dollar index, Issa said, adding that “the market is looking at it as being reflationary.”
A Democratic sweep would make larger fiscal stimulus more likely, which would weaken the U.S. currency.
The dollar had little reaction to minutes from the Federal Reserve’s September meeting, which were released on Wednesday.
“There was nothing too surprising in regards to the FOMC minutes,” Trang said, noting that Fed officials don’t expect to change rates from zero bound for the next few years.
Currency bid prices at 3:33PM (1933 GMT)
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(Editing by Bernadette Baum and Nick Zieminski)
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