By Karen Brettell, Medha Singh

NEW YORK (Reuters) -The U.S. dollar slipped on Monday as investors pulled out of Trump trades, which have benefited in recent weeks from speculation that Republican former President Donald Trump is more likely to win the presidential election on Tuesday against Democratic Vice President Kamala Harris.

“The Trump trade is unwinding," said Karl Schamotta, chief market strategist at Corpay in Toronto. "We've seen a big pullback in the likelihood of a Republican sweep as implied by prediction markets and polling.”

Harris has gained in some polls though overall they show a tight race.

Harris has also experienced improving momentum on election gambling sites and has a slight lead on PredictIt, while Polymarket continues to show Trump as favorite.

Trump's policies on tariffs and immigration are seen as likely stoking inflation, which would send longer-dated U.S. Treasury yields and the dollar higher.

At the same time, “tariffs and just sheer uncertainty is expected to harm the outlook for other currencies,” Schamotta said.

The currency market is likely to see bigger moves after the election if the party of the new president also controls Congress.

"A Red Wave (favoring Republicans) would kick-start a sizeable USD rally. It would rekindle memories of US Exceptionalism, anchored by tariffs, tax cuts, deregulation and negative impacts on the outlook for EZ and China," analysts at TD Securities said in a note.

"A Blue Wave (favoring Democrats) is the worst outcome for the USD as markets unwind Trump trades and hedges. The second order effect is that a Blue Wave could start to undermine the USD, as the potential for higher taxes and more regulation starts to see US equities underperform the rest of world," they added.

The dollar index was last down 0.05% at 103.89. The euro gained 0.41% to $1.0878. The greenback weakened 0.54% to 152.16 Japanese yen.

The one-week implied volatility options for euro/dollar were at the highest since March 2023.

The offshore Chinese yuan also gained 0.42% to 7.11 per dollar per dollar while the Mexican peso strengthened 0.79% to 20.129.

These currencies had weakened in recent weeks on expectations they would be hurt by new tariffs under a Trump presidency.

Implied volatility for the yuan is at a record high, while that for dollar/Mexican peso is at the highest since April 2020.

Bitcoin also fell 2.08% to $67,758.

Trump is viewed by analysts as enacting more favorable policies for cryptocurrencies than Harris.

The Federal Reserve is expected to cut rates by 25 basis points at the conclusion of its two-day meeting on Thursday, and investors will focus on any clues that the U.S. central bank could skip a cut in December.