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LONDON: The dollar steadied on Tuesday as some of the momentum ebbed out of bets on China’s reopening that had been weighing on the safe haven currency, and as traders looked ahead to US midterm elections later in the day.

A conclusive result could take days, but forecasts are for a Republican victory, at least in the House of Representatives and consequently likely gridlock in Congress.

Some analysts say that outcome could be positive for bonds and negative for the dollar if it leads to less fiscal stimulus.

“If we get a gridlock outcome or Republican sweep, it won’t be so easy to get fiscal stimulus through next year, which means then that (Federal Reserve chair Jerome) Powell can afford to take the foot off the interest rate hike accelerator,” said Damien Boey, chief macro strategist at Barrenjoey in Sydney.

The aggressive pace of US rate hikes has caused US Treasury yields to rise and pushed the dollar to multi-year highs against most major peers, though speculation is growing that this trend is starting to come it its end.

The euro touched $1.003 in Asia trade, its highest in nearly two weeks, before sliding to trade down a touch straddling the $1 level.

Sterling also fell, down 0.37% at $1.1473, but along with the risk friendly Australian dollar and currencies like the Swedish crown that often move in line with overall market sentiment, the pound was well off its recent lows.

“The question is the cycle turning for the U.S dollar?” said Kenneth Broux senior FX strategist at Societe Generale.

“The main take-away from last week’s FOMC is that the dollar has failed to return to the highs despite the repricing of the terminal rate, so perhaps we are reaching a point of exhaustion in the dollar’s move higher.”

“Only the future and hindsight can tell us for sure though.”

The US Federal Reserve’s rate setting committee increased rates by 75 basis points last week and Chair Jerome Powell indicated that hikes would continue, causing markets to reprice expectations of the point at which they would peak.

The Japanese yen hit a one-week high of 146.35 per dollar. Japanese foreign currency reserves posted the second-sharpest monthly decline on record in October as authorities spent 6.35 trillion yen intervening to support the yen.

Covid policy

Another factor that has weighed on the dollar in recent days was speculation that China might relax aspects of its dynamic zero COVID policy.

China’s strict virus policy includes lockdowns, quarantining and rigorous testing, and officials said over the weekend the measures are “completely correct” and will stay. But incremental adjustments have been enough to keep traders’ from despair.

Dollar drops as US nonfarm payrolls show mixed results

The yuan had its best day in two years on Friday, and has held most of those gains since, but gave back a little bit through Tuesday to trade at 7.2612 per dollar as fresh COVID-19 outbreaks chipped away at some of the optimism.

The growth-sensitive Australian and New Zealand dollars, carried along for the ride, leaving the Aussie at $0.6462 and the kiwi at $0.5915, after earlier touching a seven-week high of $0.5951.

“Where there’s smoke, eventually there’s fire, so the market is pricing in improved optimism, though at the moment it’s all based on hopes,” said Rodrigo Catril, senior currency strategist at National Australia Bank in Sydney.

In cryptocurrencies, bitcoin fell as much as 6% to as low as $19,351 and ether dropped sharply in moves traders said were linked to concern surrounding brokerage FTX, after rival Binance said it would liquidate holdings of FTX’s native token.

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