Dollar posts biggest one-day slide

The US dollar tumbled on Tuesday, posting its biggest one-day slide against the euro since that currency's 1999 launch, as investors bet that global interest rate cuts and a credit market thaw would revive world growth.
Volume was light with Americans heading to the polls to elect a successor to George W. Bush and traders said election day helped exaggerate some of the day's currency moves. Even so, the mood was upbeat with investors hoping looser lending conditions and lower interest rates around the world would stimulate growth and ease the financial crisis. Australia earlier surprised markets with a 75-basis-point interest rate cut on Tuesday, while the European Central Bank and Bank of England were expected to reduce rates on Thursday.
That dulled demand for the US dollar, which gained when investors were feverishly unwinding risky overseas trades and rerouting money to safer US assets. On Tuesday, the dollar fell 2.5 percent against a basket of major currencies, on track for its worst day in 13 years.
"There's some risk being reintroduced to balance sheets and an unwinding of the need for safety," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington. "The rise in commodities and equities shows capital is beginning to shift back into those assets and central banks are on board, vigilant and are going to be aggressive if they need to be."
In late afternoon trading, the euro was up 2.8 percent at $1.2992, off a session peak of $1.3028, but still set for its best one-day rise since its inception nine years ago. Sterling rose 0.8 percent to $1.5964 and the Australian dollar added 3 percent to US $0.6985. Analysts said the euro was benefiting from the Aussie's comeback, with the prospect of further large interest rate cuts from the ECB and BoE seen as stimulative to their respective economies.
"The current grim economic conditions could justify a cut of any magnitude," Calyon analysts wrote in a research note on prospects for UK monetary easing. In another sign of renewed risk appetite, the dollar rose 0.6 percent to 99.740 yen, while the euro gained 3.4 percent to 129.69 yen. The low-yielding yen is also seen as a safe haven and tends to fall as investors grow bolder and seek higher returns elsewhere.
A victory by Democrat Barack Obama was seen as marginally dollar positive given he could have an easier time passing his agenda through a Democratic Congress, though some said even a surprise win by Republican John McCain would be seen as a new start and could provide a dollar bounce.
Salvaggio said an Obama administration would likely support a vocal "strong dollar policy" similar to that seen in the Clinton years, particularly since Treasury will lean heavily on foreign borrowing to finance efforts to revive the economy.
Obama expanded his lead to 11 points over McCain in a Reuters/C-SPAN/Zogby tracing poll, up from 7 points on Sunday. The poll has a margin of error of 2.9 percentage points. "A landside Obama victory may raise the fear that Obama may shift more to the left, prompting a dollar-negative reaction in the short term," said Derek Halpenny, European head of global currency research for Bank of Tokyo-Mitsubishi-UFJ in London.