Nov 5 (Reuters) - The dollar fell broadly on Tuesday as risk sentiment improved ahead of preliminary U.S. election results later Tuesday and an expected Fed rate cut on Thursday. U.S. Treasury 2-year yields rose as stocks gained and after an unexpected uptick in the ISM non-manufacturing index in October. U.S. trade deficit increased to $84.4b billion in September, its largest since April 2022.

Online prediction markets were leaning in favor of Republican former President Donald Trump though polling has the two presidential candidates locked in a dead heat. Seven swing states are all but certain to decide the race though control of the U.S. Congress is also at stake, potentially giving the new president a policy mandate.

Levels of overnight FX volatility surged ahead of preliminary election results with USD/CNH reaching 30% and USD/MXN nearing 100%. By contrast, back-end implied volatilities slid anticipating calmer markets once event risks pass. The pound rose and 10-year gilt yields posted a new year-to-date high following an uptick the country's S&P Global PMI readings for October. The Bank of England is expected to deliver a 25 basis point cut Thursday. EUR/USD gained amid broad dollar weakness and hopes Germany’s ruling coalition can work out differences regarding economic stimulus proposals.

The Australian dollar rose against its G-10 counterparts amid a favorable risk tone and higher metal prices. Earlier, the Reserve Bank of Australia held rates steady and cautioned that policy would need to remain restrictive.

Kiwi held gains after dairy prices jumped 4.8% at the latest Globaldairytrade auction. The Canadian dollar strengthened to an 11-day high after data showed a pick-up in Canada's services sector.

Oil prices rose about 0.4% due to a weaker dollar and Gulf of Mexico production concerns. Treasury yields were mostly higher with the curve flattening after a 10-year note auction. The 2s-10s curve was down about 1 basis point to +11.1bp.

The S&P 500 rose 1.0% fueled by gains in tech shares.

Gold edged up 0.14% as the dollar weakened.

Copper rose about 1.0% amid a softer dollar and as China's National People's Congress looks to shed light on stimulus measures this week.

Heading toward the close: EUR/USD +0.54%, USD/JPY -0.46%, GBP/USD +0.59%, AUD/USD +0.77%, DXY -0.49%, EUR/JPY +0.08%, GBP/JPY +0.12%, AUD/JPY +0.33%.

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(Editing by Burton Frierson Reporting by Robert Fullem)

((mailto:robert.fullem@thomsonreuters.com;))