The dollar rose on Monday against the euro and yen as investors prepared for a midterm US congressional election and more monetary easing from the Federal Reserve in the days ahead. Currency traders, like their brethren across markets, have been singularly focused on the Fed for months now, and few expect Tuesday's election to change that.
The poll certainly had little impact on exchange rates on Monday, when a surprisingly strong report on the US manufacturing sector that helped push the dollar higher. Yet if a fresh round of Fed easing is already priced in on currency markets, some analysts say a big Republican election victory, while widely predicted by opinion polls, may not be.
The dollar has lost 7.5 percent against major currencies since September in anticipation of Fed easing. Most economists expect the Fed to buy $80 billion to $100 billion in assets per month, according to a Reuters poll, with total purchases seen at anywhere from $250 billion to $2 trillion. But its decline has slowed in recent weeks, as traders pared expectations of how aggressive the Fed might be and as bets against the dollar swelled.
The dollar was up 0.2 percent at 80.59 yen while the euro slipped 0.4 percent to $1.3882.
Schlossberg said he thinks the Fed has opted to launch a second round of easing - it bought $1.7 trillion of Treasury and mortgage debt in a first round - partly because political hurdles have made it harder to rely on fiscal stimulus.
Congress passed a stimulus package of tax cuts and government spending in 2009 now valued at $814 billion, according to the Congressional Budget Office, but Republicans and some Democrats have said it did little to help the economy and have been hostile to talk of more federal spending. Nearer-term, the dollar's fortunes are very much dependent on what the Fed does on Wednesday.
Dollar weakness forced Japan to intervene in currency markets to weaken the yen last month for the first time since 2004, and intervention fears rose again on Monday after the dollar spiked against the yen briefly in overnight trade. The dollar hit a 15-year low of 80.21 yen and was close to an all-time low around 79.75 yen.