The dollar rose against a basket of major currencies this morning after posting its biggest one-day slide in 13 years the previous day, as Democrat Barack Obama won the US presidential election.
Mr Obama captured the White House early this morning after an extraordinary two-year campaign, defeating Republican John McCain to make history as the first black US president.
Dollar buying kicked in shortly after media projected a victory by Obama as the outlook for a change in the ruling party helped investors become slightly more hopeful about the outlook for the United States.
But in general, Obama's win was in line with market expectations and mostly neutral for the dollar in the near term, traders said.
Osamu Takashima, chief currency analyst at Bank of Tokyo-Mitsubishi UFJ, said market players had been at the mercy of the global market turmoil in the past few weeks, having had little chance to take positions to bet on certain moves in the dollar after the election.
"Unlike many presidential elections in the past, the result of this poll should not move foreign exchange rates much, simply because players do not have positions to unwind," Takashima said.
The dollar rose 0.8 per cent against a basket of major currencies to 85.268 after falling around 2.5 per cent yesterday for its biggest one-day drop in 13 years.
The dollar was also helped by news that the Democrats expanded their majorities in both chambers of the US Congress yesterday's election to position themselves to quickly act on much of the US president-elect's ambitious agenda.
The euro slid 1 per cent to $1.2855 on trading platform EBS.
The dollar dipped 0.2 per cent against the yen to 99.50 yen Traders said dollar selling by Japanese exporters and profit-taking helped lend support to the yen.
The dollar slid 3 percent against the euro yesterday for its biggest one-day slide versus the euro since the launch of the single European currency in 1999, according to Reuters data.
A rally in European and US shares and a decline in dollar funding costs helped spur buying of higher-yielding currencies against the dollar and yen yesterday, market players said.
Tokyo's Nikkei climbed 4 per cent yesterday, extended its rebound from a 26-year intra-day low hit below 7,000 last month. Traders said more signs of a thaw in money markets had been warming up investor risk appetite.
"Market sentiment is swinging back from extreme pessimism, although it's too early to say the market has turned around," said Tsutomu Soma, a senior manager of foreign assets at Okasan Securities.
Reuters