Dollar falls after Obama victory, fiscal cliff looms

LONDON (Reuters) - The dollar fell on Wednesday after U.S. President Barack Obama’s re-election for a second term, which was seen ensuring Federal Reserve quantitative easing will be in place.

But analysts said the dollar could soon resume its uptrend trend if safe-haven flows are prompted by growing worries over the looming U.S. “fiscal cliff”. The country risks policy paralysis over a sharp fiscal tightening due to start next year unless a deal is reached in Congress to avert it

The end of uncertainty about the election result lifted equities and riskier currencies, helping the higher-yielding Australian dollar rise to its highest in nearly seven weeks and the Canadian dollar to a three-week peak.

The dollar was down 0.3 percent against a basket of currencies <.DXY> at 80.374, slipping further from Monday’s two-month high of 80.843.

The euro was up 0.4 percent at $1.2856, having hit a high for the day of $1.28765.

But the euro risked coming under selling pressure on uncertainty before a Greek parliamentary vote on austerity measures necessary to secure the next tranche of bailout cash, without which the country faces bankruptcy.

“There’s a bit of relief that there was a clear result in the U.S. presidential election, it’s removed uncertainty which is benefiting pro-cyclical currencies in particular,” said Ian Stannard, head of European currency strategy at Morgan Stanley.

“But this is likely to be short-lived, especially for the euro due to caution about Greece and Spain.”

The Democrats retained a majority in the Senate but the Republicans held control of the House of Representatives, which could lead to tough negotiations over the “fiscal cliff”, potentially prompting safe-haven flows into the U.S. dollar.

The knee-jerk reaction to Obama’s re-election, however, was positive for equities and riskier currencies because the Republicans had expressed opposition to quantitative easing.

“There had been some concern in the run-up to the election that a Romney victory would translate to premature monetary (and fiscal) tightening, so today’s outcome should reinforce expectations for easy policy to be in place for longer,” Citi analysts said in a note.

The Australian dollar gained 0.4 percent to hit $1.0480, its highest since September 21, extending gains it made after the Reserve Bank of Australia surprised some market players by not cutting rates on Tuesday.

The U.S. dollar also fell against the Canadian dollar to C$0.9875.

Against the yen the dollar fell to as low as 79.81 yen, nearly a full yen below its four-month high of 80.68 yen hit last week, before bouncing back slightly to 80.23 yen, still down 0.1 percent on the day.

The dollar’s drop came as the 10-year U.S. Treasuries yield dropped as much as seven basis points to 1.68 percent.