The US dollar is jittery ahead of a big week, and there's more to it than the presidential election

• Markets are bracing for the US presidential election amid a tight race between Vice President Harris and former President Donald Trump.
• The US dollar is in firm focus as traders tread cautiously ahead of the polls.
• The Fed's FOMC meeting and a potential fresh round of stimulus from China could also influence markets this week.

Markets are holding their breath at the start of a big week.

The US presidential election on Tuesday is the biggest event this week, and traders are firmly focused on a jittery dollar on Monday amid a tight race between Vice President Kamala Harris and former President Donald Trump.

On Monday, the US Dollar Index — which measures the greenback against a basket of six major currencies — was 0.5% lower at 3:27 a.m. ET.

Meanwhile, the US dollar was 0.6% lower against the Japanese yen and the euro was 0.5% higher than the dollar.

The dollar lost ground after weekend polls showed the odds of a Republican sweep falling, and the likelihood of a Democratic win with a split Congress increasing, Tony Sycamore, a market analyst at trading platform IG, wrote on Monday.

Polls that show Trump's odds falling would put pressure on the dollar. This is because Trump, the Republican candidate, has pledged to impose wide-sweeping tariffs on imports, which would stem currency outflow and drive up inflation and interest rates — which would support the greenback.

"This shift has weighed on the US dollar, as traders unwind some of the 'USD Trump Trade' premium," wrote Sycamore, referring to the weekend poll.

Cash trade in US Treasuries trade was closed in Asian trading hours as markets in Japan were closed for a public holiday.

Fed meeting and China stimulus

The US elections aren't all that's influencing the markets this week.

The US Federal Reserve is also set to hold its interest rate-setting meeting on Wednesday and Thursday.

Regardless of who wins the election, the Fed is expected to cut key rates by 25 basis points, according to a Reuters poll of 111 economists.

Factors driving the potential cut include Friday's jobs data, which showed the US economy added just 12,000 jobs in October — far lower than the forecast of 106,000 jobs. Meanwhile, inflation has cooled over the last few months.

"The Fed is more relaxed about inflation and is putting more focus on the jobs market as it attempts to secure a soft landing for the economy," analysts at ING wrote in a note on Friday.

Since Joe Biden will still be president until January 20, macro newsflow would still drive the Fed's interest rate decisions until December, the ING analysts added.

On the other side of the world, China is expected to greenlight a fresh round of stimulus as its Standing Committee of National People's Congress — its top legislative body — meets from Monday through Friday.

The world's second-largest economy has been mired in a prolonged economic downturn amid an epic property crisis. In late September, it announced aggressive stimulus to boost its economy, but analysts say much more is needed to drive flagging consumption.

This week, China's legislative body would be considering a plan to raise $1.4 trillion in extra debt over the next few years to fund a part of an economic rescue package, Reuters reported on Tuesday, citing two sources with knowledge of the matter.

The amount could be increased if Trump wins the presidential race, underscoring the outsized influence of the US election on the rest of the world.

"US election outcomes and the resulting tariff risks are consequential to China equity via the intertwined economic, currency, policy, earnings, and valuation channels," Goldman Sachs analysts wrote on Monday.