LONDON (AFP) - The dollar firmed in volatile, pre-US election trade as oil prices slumped more than two dollars amid reports of increased Iraqi oil exports and easing concerns about a threatened Nigerian strike.
The single European currency fell to 1.2733 dollars in late European trading from 1.2795 late on Friday in New York.
The dollar rose to 106.41 yen against 105.75 on Friday.
Trade in the currency market remained thin and volatile, however, with nerves ahead of Tuesday's US election leaving many investors sitting on the sidelines for the time being.
The dollar got a lift from falling oil prices, which earlier in the day had climbed on a strike announcement in Nigeria, Africa's largest exporter of crude.
Alaron Trading analyst Phil Flynn said the slump in crude prices was caused by news that Iraqi oil exports had climbed to the highest level since the war and that Nigerian oil workers had not yet decided on a strike.
New York's main contract, light sweet crude for delivery in December, plummeted 2.01 dollars to 49.75 dollars a barrel in early deals.
Earlier, the dollar had fallen after the US ISM index of manufacturing fell to its lowest level for a year.
"The market thought the risks were on the upside and a few investors got caught out," said Steve Barrow, currency strategist at Bear Stearns.
The impact was not significant, however, with most market players too cautious to make any move ahead of Tuesday's US election, he said.
Opinion polls were putting the incumbent President George W. Bush and Massachusetts Senator John Kerry neck-and-neck ahead of the vote.
The market's worst fear was that the result would be inconclusive and may lead to a similar situation to the last presidential election in 2000 when the final result went unconfirmed for weeks amid a series of legal battles.
"An outcome marred by further uncertainty and legal challenges is assumed to be the worst possible result for markets, and would also presumably add to pressure on the dollar," said UBS currency analyst Daniel Katzive.
A clear victory for Kerry also was likely to lead to a sell-off in the dollar due to the uncertainty associated with political change, while a clear victory for Bush was the only scenario seen likely to lead to a rally in the dollar.
Any such rally was likely to be short-lived, however. The dollar has fallen sharply in recent weeks due to concerns over how the United States will fund its ballooning current account deficit, as well as other factors such as high oil prices and the possibility of a Chinese revaluation of the yuan.
The downward trend was not expected to change, with most analysts expecting the dollar to fall towards 1.3 against the euro.
"Any post-election strength is there to be sold into," Bear Stearns' Barrow said.
Elsewhere, the pound was weak despite a stronger-than-expected survey of manufacturing activity published early Monday, as weekend reports of a possible snap British general election in February prompted some selling.
The euro was changing hands at 1.2733 dollars from 1.2795 late on Friday in New York, 135.51 yen (135.13), 0.6950 pounds (0.6952) and 1.5327 Swiss francs (1.5267).
The dollar stood at 106.41 yen (105.75) and 1.2034 Swiss francs (1.1950).
The pound was at 1.8316 dollars (1.8380), 194.89 yen (194.35) and 2.2042 Swiss francs (2.1959).
On the London Bullion Market, the price of an ounce of gold stood at 428.85 dollars against 425.55 late on Friday.
11/01/2004 - 18:19 GMT - AFP