The dollar dipped on Wednesday as investors looked ahead to a possible Democrat victory at the November 3 U.S. Presidential election, and after U.S. President Donald Trump said that he was ready to sign off on some stimulus measures.
Election polls are showing a widening lead for Democratic presidential candidate Joe Biden, while some betting markets are also reflecting the prospect of Democrats taking control of the U.S. Senate next month.
"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 on the growing likelihood of a Democrat victory, Issa said. "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.
Biden opened his widest lead in a month in the U.S. presidential vote, according to a Reuters/Ipsos poll released on Sunday.
The greenback also dipped after 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.
It came after he abruptly ended talks with Democrats on an economic aid package, accusing House of Representatives Speaker Nancy Pelosi of not negotiating in good faith.
That sent stock markets tumbling on Tuesday afternoon and boosted demand for the dollar.
The dollar index, tracking the unit against a basket of major currencies, 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 0.25% against the safe haven Japanese yen to 105.88 yen.
The euro rose 0.32% to $1.1771 as dollar weakness overcame data showing that German industrial output edged down in August following three months of relatively strong increases, suggesting the recovery in Europe's largest economy from the coronavirus shock was starting to lose steam.
The Federal Reserve will release minutes from its September meeting on Wednesday. Fed Chair Jerome Powell said on Tuesday that the U.S. economic recovery remained far from complete and could still slip into a downward spiral if the coronavirus is not effectively controlled and growth sustained.