• Karry James

Dollar claws back losses as Trump takes narrow early lead in Florida

SignalsFactory - The U.S. dollar clawed back early losses against risk-sensitive currencies on Wednesday after preliminary results suggested President Donald Trump has a slight edge over Democratic challenger Joe Biden in Florida, a key battleground state.

That undercut rising expectations in markets this week that Biden will likely win the presidency and adopt a large stimulus to support the economy.

"If Biden won Florida, he was almost certain to win the entire race but uncertainties seem high and we are seeing a correction in risk-on trades," said Yujiro Goto, head of FX strategy at Nomura Securities.

Trump was narrowly leading Biden in Florida, while other competitive swing states that will help decide the election outcome, such as Georgia and North Carolina, remained up in the air.

The dollar index measuring the greenback against a basket of currencies (=USD) stood at 93.626, flat on the day. It had shed 0.9% on Tuesday, its biggest daily drop since late March as traders had bet on a Biden victory.

A win for Biden, expected to be less confrontational in trade issues with China and other trade partners than Trump, could be a boon for currencies that have suffered from tariffs imposed by the president.

The euro fetched $1.1707 (EUR=), down 0.1% on the day after having climbed as high as $1.1770 earlier.

The British pound dipped 0.2% to $1.3036, erasing earlier gains of 0.6%. The Australian dollar gave up 0.2% to $0.7143.

The safe-haven yen was little changed at 104.59 per dollar.

The offshore Chinese yuan, seen as a currency that has much to lose if Trump wins due to his hawkish stance on China on trade and several other issues, dropped 0.25% to 6.6959 dollars.

Investors were braced for the possibility that the election results may not become clear on Wednesday, with markets hedging against the risk of a contested election or a potentially drawn-out process as mail-in ballots were counted.

"A contested election probably takes all of the SPX, Bond yields and the USD (at least versus majors) down meaningfully," said Alan Ruskin, chief international strategist at Deutsche Bank (DE: DBKGn) in New York.

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