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Lawmakers in Washington have been negotiating intermittently
since August, with Democrats arguing for a bigger package to
help manage the economic fallout from coronavirus.
Trump raised hopes for a breakthrough on Tuesday by saying he
was willing to accept a large aid bill, despite opposition from
his own Republican party.
The dollar fell in response to the comments, even though markets
generally expect more fiscal stimulus to be passed in the near
future regardless of whether it is agreed before the election.
"It’s not a gamechanger – I think the base scenario for the
market is that there will be another fiscal stimulus package at
some point in the next few weeks or maybe in a few months," said
Thu Lan Nguyen, FX and EM analyst at Commerzbank.
"The market has still reacted positively to it because obviously
the earlier the better in the current situation."
At 1102 GMT, the dollar was down 0.3% against a basket of
currencies, at 92.733 <=USD>, having hit a low of 92.685 earlier
in the session.
Nguyen said that the day's currency market moves were not
typical "risk-off" moves, as the safe-haven Japanese yen was up
around 0.5% against the dollar, close to one-month highs, at
104.845 <JPY=EBS>.
Rather, the hopes for fiscal stimulus caused dollar weakness
because it boosted long-term inflation expectations for the
United States, she said.
"Normally if you have higher inflation the currency appreciates
because the market expects higher interest rates. That is not
the case for the U.S. at this point any more ... the Fed now
wants higher inflation - it’s not going to raise interest rates
automatically if inflation’s a little bit higher," she said,
referring to the U.S. Federal Reserve's policy shift to tolerate
higher inflation.
The riskier New Zealand and Australian dollars both advanced,
with the Kiwi up 0.8% and the Aussie up 0.6% versus the dollar
by 1107 GMT <NZD=D3> <AUD=D3>.
The Norwegian crown reached a one-week high of 9.19625 versus
the U.S. dollar <NOK=D3>, and the Canadian dollar rose to its
strongest in more than six weeks, touching 1.3081 per dollar
<CAD=D3>.
The euro rose to a one-month high versus the dollar in early
trading and was up 0.3% at $1.18575 at 1108 GMT <EUR=EBS>.
China's yuan surged, in both offshore and onshore trading, led
by firmer central bank guidance and recent data suggesting a
more sustained recovery in the world's second-largest economy.
The offshore yuan reached its strongest in two years versus the
U.S. dollar towards the end of the Asian session at 6.6278
before easing somewhat. By 1108 GMT, it was up 0.4% at 6.6393 <CNH=EBS>.
Elsewhere, sterling jumped to as high as $1.3071 after the
European Union's chief negotiator said that a Brexit deal with
Britain was "within reach" <GBP=D3>.
Graphic: World FX rates in 2020
https://graphics.reuters.com/GLOBAL-CURRENCIES-PERFORMANCE/
0100301V041/index.html
(Reporting by Elizabeth Howcroft, editing by Larry King and
Steve Orlofsky)
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