- Focus on 1st US presidential debate.
- Options-related flows bet on dollar downside.
- US consumer confidence rises, lifts risk appetite.
NEW YORK: The dollar on Tuesday dropped from last week's two-month highs, as investors capitalized on recent gains in the greenback and cautiously looked ahead to the first debate between US President Donald Trump and Democratic challenger Joe Biden.
The US currency fell to one-week lows against the euro and Swiss franc, and dropped against commodity currencies such as the Australian and New Zealand dollars as well as the Norwegian crown.
The 90-minute televised debate between the two US presidential candidates at 9 p.m. EDT (0100 GMT) will be watched by investors looking for guidance on the candidates' prospects.
"The debate is so much awaited because of all the political tensions going and also because economically both candidates have different visions for the country," said Juan Perez, senior currency trader, at Tempus Inc in Washington.
"There is a lot more volatility on the domestic side than on the international side. Global sentiment is also a little better than that in the US and so it's making sense that investors are moving away from the US dollar," he added.
In afternoon trading, the dollar index fell 0.3% to 93.879 , after hitting a two-month peak on Friday.
The greenback also added to losses, as investors felt a little more confident getting out of the safe-haven currency after data showed US consumer confidence rebounded more than expected in September, as households' views of the labor market improved.
The dollar was also weighed down earlier by currency flows in the options market as well as for month end, said Erik Bregar, head of FX strategy at Exchange Bank of Canada in Toronto.
The euro firmed across the board, rising 0.6% against the dollar to $1.1737, after hitting a getting one-week peak. The single currency also climbed to a two-week high versus the yen, and was last 0.8% T 124.04 yen.
European Central Bank policymakers are increasingly divided over how to steer Europe's economy through a second wave of COVID-19 infections.
The dollar fell to a one-week low against the Swiss franc and was last down 0.6% at 0.9194 franc .
Markets were also waiting for developments in talks over aid for people affected by the coronavirus in the United States.
US House Speaker Nancy Pelosi said on Tuesday she hoped to have a coronavirus aid deal with the White House this week, after speaking with Treasury Secretary Steve Mnuchin for about 50 minutes and making plans for further talks on Wednesday.
Sterling, meanwhile, rose on hopes for a Brexit deal and the Bank of England's deputy governor saying he thought the floor for the central bank's key interest rate was 0.1%.
The pound was last up 0.3% at $1.2867.