The dollar nudged up from a six-month low against the yen today as investors sought bargains after its recent sell-off, but uncertainty about the outcome of the US presidential election capped its recovery.
A close race between US President George W. Bush and Democratic Senator John Kerry has heightened worries that deciding the winner of tomorrow's election could drag on as it did in 2000, encouraging investors to stay relatively light of dollar positions.
Analysts said the neck-and-neck race was discouraging many market players from betting on who the next US president would be and that any glitches in the voting process, like those seen in the 2000 election, could weigh on the dollar.
"If there is any confusion or disruption with the election process, there's a big possibility that there will be some dollar selling," said Mr Shogo Nagaya, forex manager at Nomura Trust and Banking.
At the same time, some believe the dollar would be dented by a Kerry win, for reasons ranging from political instability due to a change in government to speculation that he could take measures that would stifle the stock market.
"If Bush wins it could be slightly positive for the dollar as his policies are more or less known, but a Kerry win could be negative given uncertainty over his policies," said Mr Kaoru Kondo, chief analyst at Fisco.
Investors were also reluctant to bet on the market's direction ahead of key US economic data due this week.
The Institute for Supply Management's manufacturing index, due at 3 p.m. Irish time, is expected to show that US manufacturing accelerated in October.
US non-farm payroll figures for October, due on Friday, are expected to show an increase of 169,000 new jobs.
US payroll figures have had a big impact on the markets in recent months as investors have looked to see how sustainable the US recovery is likely to be and whether higher interest rates will be needed.