The Dollar declined on Monday, while stocks managed modest gains as investors proceeded cautiously in anticipation of a highly significant US presidential election, which could have wide-reaching effects on the global economy.

Additionally, the US Federal Reserve is expected to announce an interest rate cut later in the week.

In the presidential race, Democratic candidate Kamala Harris and Republican candidate Donald Trump are locked in a close contest according to opinion polls, with Tuesday's vote unlikely to produce an immediate clear winner, leaving uncertainty that may last for several days, Reuters reports.

Analysts suggest that Trump’s policies on immigration, tax cuts, and tariffs could drive inflation, bond yields, and the Dollar higher, whereas Harris is viewed as a candidate likely to maintain current policies.

The Dollar index, which tracks the greenback against a group of major currencies, slipped by 0.3% to 103.63 at the time of writing.

The Dollar also weakened against several European and Asian currencies, dropping 0.6% against the Euro to $1.090 and 1% against the Japanese Yen to 151.62, with losses continuing during London trading hours. 

Dealers suggested the Dollar's slide may be connected to a recent poll showing Harris unexpectedly gaining a 3-point lead in Iowa, largely driven by her strong support among female voters.

“Tomorrow will shape the direction of the world economy and geopolitics for the next four years,” said Deutsche Bank analysts.

They warned that “there remains a large degree of uncertainty around both the result, including the very tight House (of Representatives) race, and when we will know it.”

Moreover, the Bank of England is also anticipated to cut rates by 25 basis points at its Thursday meeting, though its decision is complicated by a recent sell-off in gilts following the Labour government’s budget announcement last week.

Sterling inched up 0.5% to $1.297, buoyed by a weaker Dollar, after declining 0.3% last week.