* Dollar index close to three-week lows
* China's yuan drops after Central Bank lowers reserve
requirement
* Riskier currencies stabilise
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
LONDON, Oct 12 (Reuters) - The dollar held near three-week
lows on Monday amid optimism about fiscal stimulus in the United
States, while the yuan fell after China's central bank changed
its policy on yuan reserves.
The dollar index was steady, having seen its biggest loss in
six weeks on Friday, when investors upped their bets that a
fiscal stimulus package would be agreed to mitigate the economic
fallout from COVID-19. The Trump administration called on Congress to pass a
stripped-down version of the relief bill on Sunday, while
negotiations on a broader package continue. The dollar has been buffeted by the on-again, off-again
stimulus negotiations. Still, with Nov. 3 election only weeks
away, investors are betting that Democrat Joe Biden is more
likely to win the U.S. presidency and offer a larger economic
package. "Any negative fallout from a failure to reach a fiscal deal
before the election will be dampened by expectations for even
bigger stimulus after the election," MUFG currency analyst Lee
Hardman wrote in a note to clients.
"Market participants remain optimistic over a Blue Wave," he
added, citing polling data which shows a Biden lead.
The dollar index was at 93.118 at 0729 GMT, flat on the day
and having almost completely reversed its recovery at the end of
September =USD .
The euro was down 0.2% on the day at $1.1808 EUR=EBS . In
Europe, the World Health Organization has urged governments to
restrict activity to combat a rapid rise in COVID-19 infections.
Speculators cut their euro long positions to a two-month low
in the week to Oct. 6, weekly CFTC data showed 1099741NNET .
European Central Bank President Christine Lagarde is due to
speak at 1100 GMT.
The yen was up 0.1% against the dollar at 105.520 JPY=EBS .
The safe-haven Swiss franc was flat against the euro at 1.07630
EURCHF=EBS .
The riskier New Zealand and Australian dollars were both
down around 0.2% on the day, having eased gains from Friday,
when they rose to their highest in nearly three weeks NZD=D3
AUD=D3 .
CHINA'S CENTRAL BANK STEPS IN
The yuan fell after the People's Bank of China (PBOC) said
on Saturday that it will lower the reserve requirement ratio for
financial institutions when conducting some foreign exchange
forwards trading. Analysts say the move was a bid to curb recent yuan
appreciation.
The yuan reached a 17-month high on Friday in both onshore
and offshore trade. It has gained more than 6% against the
dollar since late May, driven by a favourable yield differential
between China and other major economies.
At 0743 GMT on Monday, the onshore yuan was down 0.3%
CNY=CFXS . The offshore yuan was at 6.7109 per dollar, also
down 0.3% on the day CNH=EBS .
The move was also cited as a reason for weakness in the
China-sensitive Australian dollar.
"Markets may take this move as a signal the PBoC intends to
slow CNY appreciation in the near term, though we note the
accompanying statement included a vow to keep the exchange rate
flexible, stabilize market expectations and maintain a "broadly
stable" exchange rate," UBS strategists wrote in a note.
"The next big move in the yuan may be linked to the U.S.
election outcome and who will be negotiating trade with China
for the next four years," UBS added.