The dollar fell against most currencies in choppy trading, as risk sentiment improved after U.S. government officials expressed hope that another stimulus package could be passed to help ease the economic impact of the coronavirus-induced recession.
The greenback slid against the yen and weakened versus currencies associated with higher risk appetite such as the Australian, New Zealand, and Canadian dollars.
U.S. House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin both expressed hope for a breakthrough on additional COVID-19 relief on Wednesday, as they prepared to resume talks aimed at hammering out a bipartisan deal.
"Renewed hopes for stimulus have whetted appetite for risk at the dollar's expense," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington. "It's encouraging to hear the rhetoric, but until it is signed, sealed, and delivered, the market will be skeptical," he added.
The dollar index was last trading little changed on the day at 93.90. The index hit a two-month high last Friday.
Tuesday's highly contentious debate between U.S. President Donald Trump and Democratic challenger Joe Biden boosted the dollar earlier, as it reinforced concerns that the outcome of the Nov. 3 presidential election could be contested.
Trump and Biden battled fiercely over the Republican incumbent's record on the coronavirus pandemic, health care and the economy in a chaotic and ill-tempered first debate marked by personal insults and Trump's repeated interruptions.
"The debate just confirmed that the election would be pretty much contested if it's anywhere close," said Edward Moya, senior market analyst at OANDA in New York. The greenback was also boosted by quarter-end and month-end portfolio rebalancing, analysts said.
Demand for dollars tends to rise at the end of quarters as portfolio rebalancing and fund transfers require currencies like the euro and sterling to be converted to dollars.
U.S. economic data was also for the most part dollar-supportive. U.S. private employers stepped up hiring in September, with private payrolls increasing by 749,000 jobs this month, the ADP National Employment Report showed on Wednesday. Data for August was revised up to show 481,000 jobs added instead of the 428,000 initially reported.
Andrew Hunter, senior U.S. economist at Capital Economics, however, said despite job gains, employment was still more than 10 million jobs below its pre-pandemic level. "A full labor market recovery remains a long way off," he noted.
Data also showed that U.S. gross domestic product plunged at a 31.4% annualized rate in the second quarter, the deepest drop in output since the government started keeping records in 1947, based on the Commerce Department's third estimate of GDP.
The euro was down 0.2% against the dollar at $1.1716. Overall, the dollar was set for its worst quarter since the spring of 2017, with a fall of about 3.3% as hopes for a swift recovery from the COVID-19 economic crash made investors exit safe havens and buy into riskier currencies.
The dollar fell 0.1% against the yen to 105.55.
The Australian dollar rose 0.6% against the greenback to US$0.7166. The New Zealand dollar gained 0.5% to US$0.6621. Against the Canadian dollar, the U.S. dollar fell 0.5% C$1.3319 .