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NEW YORK: The US dollar held in a narrow range on Wednesday as financial markets gyrated after Barack Obama's victory in the US presidential election and ahead of an expected interest rate cut by the European Central Bank.
The euro dipped to 1.2962 dollars against 1.2975 late Tuesday in New York.
The dollar meanwhile eased back to 98.33 yen after 99.69 on Tuesday.
Neil Mellor at Bank of New York Mellon said markets were awaiting a possible shift in currency policy from Obama, who is believed to be talking to former treasury secretaries Lawrence Summers and Robert Rubin about taking the post again.
"Given that both Mr. Summers and Mr. Rubin have acted as key economic advisors to President-designate Obama, it seems entirely possible that the appointment of the new treasury secretary could see the revival of the 'strong dollar' mantra," Mellor said.
"Certainly, given the nation's huge funding needs in the years ahead, it could be argued that a stable to gently rising dollar would help keep attracting in much-needed capital from abroad - it seems reasonable to suppose that China and Saudi Arabia would be happy with this outcome."
Investors also were awaiting an interest rate cut on Thursday by both the ECB and the Bank of England.
But the impact of an ECB rate reduction on the euro was far from clear.
"The market has gone all bipolar about interest rates," noted analysts at Moneycorp.
"One day the threat of a rate cut sends a currency down because falling yields are a disincentive to hold it.
"The next, lower rates are a positive sign for the currency because they attract money into equity markets."
Traditionally, a cut in interest rates tends to make the affected currency less attractive to investors, driving it lower.
But analysts noted that after the Australian Central Bank on Tuesday lowered its benchmark interest rate by an unexpected three quarters of a point, the Australian dollar gained ground.
Equity markets also fell sharply in the United States and Europe as the complexity of the economic problems that will confront President-elect Obama dispelled initial euphoria.
In the medium term, said analyst Lee Hardman of the Bank of Tokyo Mitsubishi, the fact that Democrats failed to gain a 60-seat veto-proof majority in the Senate "is a positive for the dollar" ... "as it will likely ensure that the Democrats' policy initiatives don't shift too far to the left."
At Barclays Capital analyst Jeff Gable commented: "In the short term, an Obama victory, combined with a strong majority in the Senate, is likely to be bullish for the dollar, as it will enable Washington to respond more proactively in terms of managing the financial crisis."
But Gable also warned that "an Obama victory should - in the long term - prove negative for the dollar because it is likely to lead to a more expansive fiscal policy and a more protectionist-minded White House."
In late New York trade, the dollar stood at 1.1578 Swiss francs after 1.1622 on Tuesday. The pound was at 1.5930 dollars from 1.5942. - AFP/de
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