The U.S. dollar was lower against major currencies on Wednesday after climbing to a near nine-month high the previous session. The pound regained ground, while the Canadian dollar slipped on lower oil prices.
Expectations of a rate hike by the U.S. Federal Reserve supported the greenback in recent sessions, but fresh uncertainty surrounding the upcoming presidential election and the Fed’s monetary policy meeting has weighed on the currency.
Analysts say the dollar’s rally was purely driven by speculation of a rate increase before the end of the year, making the greenback vulnerable to losses if conflicting signals from Fed officials emerge before the year is through.
“The general consensus is that a victory for Republican candidate Donald Trump would hurt the dollar,” said a spokesman for Opteck, a trading platform for CFDs (Contract for Difference) and forex.
Market players are pricing in on a 74% chance of a rate increase at the Fed’s December monetary policy meeting, according to FedWatch.
The pound, meanwhile, regained ground to trade 0.39% higher at 1.2237.
Sterling fell to its lowest level in nearly a month on Tuesday, but rebounded slightly after comments from Bank of England Governor Mark Carney. Carney said the central bank had to consider the pound’s “substantial” drop since June’s Brexit vote.
Market players took the comments as a clue that the Bank of England will hold rates at its next meeting.
The Canadian dollar eased against the greenback as oil prices slid and the Bank of Canada took a dovish tone.
Oil prices dipped 2% after data showed an increase in U.S. inventories. Increased output out of Nigeria and doubts over an OPEC agreement to cut production further weighed on the commodity.
The oil-dependent currency was under further pressure after comments from the BoC suggested it was considering cutting rates for the third time in two years at its last monetary policy meeting.
Stephen Poloz, Bank of Canada Governor, said additional easing would bring the central bank close to an unconventional monetary policy and noted that the decision to cut rates was not one to be taken lightly.
Elsewhere, the euro retreated from an eight-month low, while the Aussie climbed to a high of 0.7709 before settling at 0.7666. The greenback moved higher against the yen to trade at 103.34.
The Aussie benefited from stronger-than-expected inflation data in the third quarter, which dampened expectations of a rate cut in the near-term.