[BREAKING] Dollar Steadies Ahead of Debate but Set For Weekly Loss on Stimulus Hopes

Illustration photo of U.S. dollar from Daily FX

SINGAPORE (Reuters) - The dollar took stock at the end of a poor week on Friday, having shed about a cent against the euro and suffered its largest weekly drop against the yen in a month, as investors began to wager on a Biden presidency and big U.S. stimulus.

Daily moves were slight and mostly in the dollar’s favour early in the Asia session as traders awaited the final U.S. presidential debate, which begins at 01:00 (GMT).

Markets could be sensitive to any vote-shifting moments as campaigning hits fever pitch ahead of polling day on Nov 3.

The dollar has lifted from Wednesday’s seven-week low against a basket of currencies, but still sits about 0.8% lower for the week and in the bottom half of a monthslong range.

Persistent hopes that Congress might pass a stimulus package before the election and confidence that spending follows anyway, no matter who gets elected, has driven a selloff in the bond market in anticipation of more government borrowing.

The dollar has been sold through the week because the prospect of stimulus has supported investors’ mood and their appetite for riskier currencies instead, while underlying caution has also given the safe-haven Japanese yen a boost.

“If we do get through and Biden wins and he pushes on with stimulus, then we’re back in to a negative U.S. dollar, risk-on, positive for Aussie and kiwi kind of story,” said Westpac currency analyst Imre Speizer.

The risk-sensitive Australian dollar inched 0.1% higher early on Friday and is about 0.7% firmer this week, with further gains capped by a growing expectation that the Reserve Bank of Australia will cut rates when it meets in November.

The New Zealand dollar slipped 0.1% Friday after softer-than-expected inflation data, but has gained almost 1% for the week.

The Japanese yen dipped overnight after U.S. House Speaker Nancy Pelosi said there was progress in stimulus talks, but it is about half a percent higher for the week and has ground nearly 3% higher since April.

The euro has gained 0.8% this week, though pulled back overnight as COVID-19 cases surge in Europe.

British, European and U.S. Purchasing Managers’ Index figures are due later on Friday.

Sterling slipped overnight on uncertainty over Brexit outlook, but it is up 1.2% this week and is clinging on above $1.30 thanks to hopes that Britain and the European Union can reach a trade deal before a transition period ends on Dec 31.

In offshore trade the Chinese yuan hovered just short of a more than two-year high hit earlier in the week.

Analysts said the debate may not move markets immediately, but that political uncertainty over the election meant for a risky environment.

“We continue to see a high risk that the election outcome is delayed or contested,” she said, adding to near-term downside risks for the Australian dollar.

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