(Bloomberg) -- The US dollar fell the most since August Thursday, erasing much of the previous day’s steep gain sparked by Donald Trump winning the US presidential election.
The Bloomberg Dollar Spot Index fell 0.8% amid steep declines for US Treasury yields — a reversal of bigger increases in the previous session. The gauge for the greenback maintained its losses as the Federal Reserve cut interest rates, in line with expectations but not shifting market pricing for further rate reductions.
“Action has shifted away from the Fed for now,” said Aroop Chatterjee, a strategist at Wells Fargo. “It’s all about what the new administration and Republican control of Congress will bring.”
The control of the US House remains uncertain with uncounted votes in about 30 congressional races Thursday. If Republicans take over, they will be able to smooth the way for Trump’s tax cuts, and immigration and trade policies, as well as confirming his nominees.
Trump’s election is seen as positive for the dollar because of the potential for his trade policies to slow the Fed’s pace of monetary easing. The dollar gauge rose Wednesday to the highest level in a year.
Following the Fed’s rate decision Thursday, Chair Jerome Powell said the US presidential election has “no effects” on the central bank’s decisions in the near-term, noting it’s too early to know the timing or specifics of any potential policies and implications. Powell also said removal or demotion of any Fed board leaders, including himself, is “not permitted under the law” and he won’t step down if asked by Trump.
The dollar’s weakness stems in part from strength in the pound, which gained as much as 1% against the greenback as traders pared bets on further Bank of England easing after it reduced rates as expected. The Australian dollar had the best year in nearly a year.
The Australian dollar had the best day in about a year, while the yen saw the biggest rise since the end of September.
Trump’s win is a positive growth shock for the US, but not necessarily “fully negative” for the world, according to Sam Zief, head of global FX strategy at JPMorgan Private Bank.
“We are long dollar bias against countries with weaker economic growth,” he said, adding that he likes long dollar against the Chinese yuan and euro.
Zief is also long Australian dollar and pound against the yuan and euro.
Hedge funds and other speculative traders were positioned for a further rally in the dollar as demand for haven assets rose ahead of the election, according to Commodity Futures Trading Commission data from last week. The CFTC will report on the week through Nov. 5 on Friday.
--With assistance from Carter Johnson.
(Updates prices, adds Fed rate decision.)
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