Dollar steadies, but more losses seen on post-election policy outlook

© Reuters. FILE PHOTO: A U.S. dollar note is seen in front of a stock graph in this picture illustration

By Stanley White

TOKYO (Reuters) - The dollar steadied against many currencies on Friday, but traders say more losses are likely as a contentious U.S. presidential election diminished hopes for large stimulus to support the economy any time soon.

Investors are betting that Democrat Joe Biden will become the next president but Republicans will retain control of the Senate, which will make it difficult for the Democrats to pass the larger fiscal spending they have been pushing.

Biden maintains an edge over President Donald Trump, but a few important states are still counting votes and Trump is mounting legal challenges to vote counts, so there is still a high degree of uncertainty.

A large decline in long-term Treasury yields due to expectations for less fiscal spending, combined with a rally in equities and other risk assets, has placed the dollar under consistent selling pressure that is likely to continue.

"There is a green light for the resumption of dollar selling, reflecting past declines in real interest rates," said Ray Attrill, head of foreign exchange strategy at National Australia Bank (OTC:NABZY) in Sydney.

"There's an argument that the U.S. Federal Reserve will have to backstop risk assets. The pandemic is still trending in the wrong direction."

The dollar traded at 103.61 yen in Asia on Friday, close to an eight-month low.

Japanese Prime Minister Yoshihide Suga has vowed to work closely with overseas authorities to keep currency moves stable, because a strong yen is widely viewed as a threat to Japan's economy.

Against the euro (EUR=EBS), the dollar traded at $1.1818 after falling 0.87% in the previous session.

The British pound traded at $1.3128, holding onto a hefty 1.23% gain from Thursday.

The dollar index (=USD) against a basket of six major currencies stood at 92.668, close to a two-week low.

For the week, the dollar index was down 1.5%, on course for its biggest drop in almost four months.

Voting tallies from several U.S. states continued to trickle in during the Asian session, but currencies showed little reaction because the declaration of an outright winner could take several more days or even weeks, some traders said.

Investors also await the release of U.S. non-farm payrolls later on Friday, which is forecast to show a slight slowdown in job creation.

Worries about the U.S. economy are growing, which is a reason to expect declines in the dollar to continue into next year, some analysts say.

The rise in new coronavirus cases to record levels in several states could also curb U.S. economic activity.

The onshore yuan fell slightly to 6.6366 per dollar but still remained close to its more than two-year high reached on Thursday.

Many investors expect a Biden administration will slightly scale back Trump's trade war with China, which should benefit the yuan.

Elsewhere, the Australian dollar fell against the greenback in Asian trading after the country's central bank said it is prepared to expand bond purchases if needed to support the economy.

The declines in the Aussie also dragged the New Zealand dollar lower.