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Dollar Dithers Ahead of Election Mon Nov 1, 2004 TOKYO (Reuters) - The dollar dipped against the yen and edged up versus the euro on Tuesday, but moves were restrained as traders held off making large bets on the currency ahead of the U.S. presidential election. A close race between President Bush and Democratic Senator John Kerry has heightened worries that the election could drag on and be decided in the courts, as it was in 2000, encouraging investors to stay light on dollar positions. "The general feeling is that the dollar will be sold if Kerry wins, or in the case that we don't get a quick clean result," said Hideaki Furumaya, forex manager at Trust & Custody Services Bank in Tokyo. "But we're all just sitting around waiting for the election, and I don't expect much movement for the next day or so until we get a result." At 2140 EST, the dollar bought around 106.32 yen, down 0.13 percent on the day. It hit a 6- month low of 105.77 on Friday. The euro was down 0.13 percent at $1.2736. The U.S. currency received some support from falling oil prices, which briefly dipped to a one-month low of $49.30 per barrel on Monday, easing concerns that high energy prices would crimp U.S. economic growth. Cheaper oil also increases the likelihood of more rises in Federal Reserve interest rates, which are seen dependent on the U.S. economy expanding strongly, analysts said. The Fed's policy-setting Federal Open Market Committee next meets on November 10. Most analysts expect it to raise the official funds rate by 25 basis points to 2.0 percent. ELECTION WATCH The currency market is mainly positioned for no clear outcome in the election, a Reuters poll of strategists showed on Monday. However a clear victory for either Bush or Kerry would boost the dollar in the short term, according to the poll. Over that period of uncertainty the Standard & Poors 500 stock index fell eight percent and the U.S. dollar index lost around one percent. The latest Reuters/Zogby poll released on Monday showed that Bush had a one-point lead over Kerry, well within the margin of error. Many traders said that a Kerry victory could hurt the dollar due to a perception that his administration would increase pressure on China to revalue the yuan, a move that would likely support the yen and other Asian currencies. Some analysts said such a view was not sound. "Even though Bush and Kerry are both likely to use rhetoric conducive to a weaker dollar, such as encouraging China to give up its peg, neither of them really have any incentive to actively weaken the dollar," said Naomi Fink, senior currency strategist at BNP Paribas. "They need the capital flows too much." Most analysts say that regardless of the winner of the election, fundamentals such as the gaping U.S. current account deficit would likely keep pressure on the dollar.
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