President Trump has maintained a slim lead in key battleground states with the Chinese yuan and Mexican peso hit hardest by the idea of four more years of his aggressive trade policy

The U.S. dollar jumped and risk-sensitive currencies weakened on Wednesday as early results in the U.S. presidential election showed a very tight race, prompting a wind-back of bets on a victory by Democratic challenger Joe Biden.

President Donald Trump, who has so far trailed in polls, has maintained a slim lead in key battleground state of Florida, with the Chinese yuan and Mexican peso hit hardest by the spectre of four more years of his aggressive trade policy.

“I think the odds of a clean sweep are diminishing, almost by the minute. That reduces the possibility, or the likelihood at least of a large stimulus program being agreed to in the first days of a Biden administration.”

The Mexican peso fell almost 4% at one point and last traded at 20.905 per dollar, down almost 3% while the offshore Chinese yuan fell 0.8% to 6.7362 to the dollar, hitting one-month low at one point.

Among major currencies, the euro fell 1% to a low not seen since late July and last stood at $1.1624, down 0.82% on day.

The Australian dollar lost 0.6% to $0.7128  while the British pound dropped 0.6% to $1.2983. The Canadian dollar fell 0.65% to C$1.3218 per U.S. unit. All of them sank more than one percent at one point.

The Japanese yen also gave up 0.65% to 105.195 per dollar.

Trump was narrowly leading Biden in Florida, while other competitive swing states that will help decide the election outcome, such as Georgia and North Carolina, remained up in the air.

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That undercut expectations in markets this week that Biden will likely win the presidency and adopt a large stimulus to support the economy.

“If Biden won Florida, he was almost certain to win the entire race but uncertainties seem high and we are seeing a correction in risk-on trades,” said Yujiro Goto, head of FX strategy at Nomura Securities.

The dollar index measuring the greenback against a basket of currencies  gained 0.7% to 94.202.

Investors were increasingly braced for the possibility that the election results may not become clear on Wednesday, with markets hedging against the risk of a contested election or a potentially drawn out process as mail in ballots were counted.

Analysts at Morgan Stanley have said if the results is too close to call by 12pm EST on Wednesday (0500 GMT on Thursday), it will likely be too close to call for several days beyond that.

“A contested election probably takes all of the SPX, Bond yields and the USD (at least versus majors) down meaningfully,” said Alan Ruskin, chief international strategist at Deutsche Bank in New York.

(Reporting by Hideyuki Sano and Eimi Yamamitsu, additional reporting by Tom Westbrook in Singapore; Editing by Shri Navaratnam and Kim Coghill)

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