- AI stocks sold off, US midterm elections loom
- Aussie dips after RBA delivers expected hike
- Yuan slides after China hikes FX RRR
- Swiss franc fails to hold gains after inflation data
LONDON/HONG KONG, Nov 3 (Reuters) - The dollar held steady on Tuesday as investors weighed uncertainty over US-Iran tensions and US midterm elections, while the Australian dollar and China's yuan came under pressure after domestic policy moves.
The euro gave back small early gains to trade down a whisker at $1.1178 , the pound was flat at $1.3410 and the Japanese yen was softer at 157.82 per dollar.
The midterms come at a tense time for markets, with a slump in AI-related shares causing investor unease. Polls and nonpartisan analysts suggest Democrats could retake the House of Representatives, while control of the Senate remains uncertain.
"The risk is domestic policymaking becomes more difficult ... if you can't agree anything when you're running a sizeable budget deficit and sizable spending, then the danger is you tighten fiscal policy, slow the economy and weaken the currency," said Kit Juckes, head of FX strategy at Societe Generale.
Investors are also watching the Gulf, where diplomatic efforts to prevent a renewed escalation in conflict after the US elections have helped push oil prices lower and weighed on the dollar in recent days.
However, a senior Iranian official told Reuters on Tuesday that Iran and the US were far from reaching a deal to end the war.
FRANC, YUAN AND AUSSIE
Elsewhere, traders reacted to a series of domestic developments.
China's yuan weakened sharply after the central bank raised the amount of foreign currency that financial institutions must hold as reserves, a move seen by traders and analysts as an attempt to slow the currency's recent gains.
The dollar rose 0.4% against the yuan to 6.6765, its biggest daily jump since March and was up 0.37% on the offshore yuan at 6.672.
The Australian dollar fell as much as 0.5% and was last down 0.24% at $0.6981 after the Reserve Bank of Australia raised its cash rate by 25 basis points to 4.85%, as expected, but a split vote raised doubts about further increases.
The central bank has raised rates by a total of 125 basis points this year. A narrower-than-expected 6-3 vote suggested policymakers may be nearing the end of the tightening cycle.
"The split vote has trimmed market RBA hike pricing, contributing to the move lower in (the Australian dollar)," said Westpac analysts.
"The latest statement has also removed the line that the RBA is 'willing to increase the cash rate further if necessary' which suggests a more measured approach to hikes moving forward."
Other central banks due to announce policy decisions this week include those of Britain, Norway and Sweden.
The Swiss franc briefly strengthened on both the euro and the dollar after annual inflation accelerated to its highest level in nearly three years in October, driven by a sharp rise in petrol prices.
However, it failed to hold the gains and the dollar was last 0.16% higher at 0.8199 francs, with the euro also a fraction firmer at 0.9167 francs , .
Reporting by Alun John in London, Jiaxing Li in Hong Kong and Ankur Banerjee in Singapore. Editing by Clarence Fernandez and Mark Potter
Source: Reuters