BLBG:Dollar Gains as Fiscal-Cliff Debate Spurs Safety Bid; Euro Falls
The dollar rose the most in a week against the euro as concern U.S. lawmakers will fail to avert the so-called fiscal cliff of more than $600 billion of tax increases and spending cuts spurred demand for safer assets.
The U.S. currency strengthened against most of its 16 major counterparts before President Barack Obama meets Democratic and Republican congressional leaders today as a year-end budget deadline approaches. The yen earlier fell to a 28-month low versus the dollar after Japanese consumer prices and factory output declined, fueling speculation the central bank will heed government calls to step up stimulus to end deflation.
“Investors are becoming more wary over the fiscal-cliff developments in terms of a more adverse market outcome and that’s helping to support a pickup in safe-haven demand for the dollar,” said Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi-UFJ Ltd. in London.
The dollar strengthened 0.4 percent to $1.3188 per euro at 10:01 a.m. in London, the biggest gain since Dec. 21. The yen rose 0.2 percent to 85.97 per dollar after depreciating as much as 0.6 percent to 86.64, the weakest level since Aug. 3, 2010. The euro dropped 0.5 percent to 113.41 yen.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, gained 0.3 percent to 79.822.
House Meeting
U.S. House Republican leaders announced the chamber will meet on Sunday Dec. 30. Obama, who had been negotiating one-on- one with House Speaker John Boehner, will meet today with Republicans Boehner and Senate Minority Leader Mitch McConnell, as well as Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats.
The president returned early from his holiday in Hawaii yesterday as lawmakers disputed which party would be responsible for missing the deadline for a debt deal, a failure that could hurt the U.S. credit rating and cause an economic recession.
JPMorgan Chase & Co. lowered its yen projections today, saying the currency will weaken to 90 per dollar in the second quarter of next year as Japan’s trade surplus worsens and overseas investors factor in changes under the administration of new Prime Minister Shinzo Abe. Its previous estimate was 83.
Nomura Holdings Inc. reduced its yen forecast to 90 per dollar for the second quarter from 85, citing Abe’s “aggressive” push toward a 2 percent inflation target. The yen may decline to 90 by the end of 2013, weaker than the previous forecast of 88, Yujiro Goto, Yunosuke Ikeda and Jens Nordvig, Nomura strategists, wrote in a research note dated yesterday.
The yen has weakened 2.1 percent against the dollar since Dec. 21, a seventh weekly decline. Japan’s currency has tumbled 2.1 percent against the euro.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
