By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) — The dollar strengthened against the Japanese yen but weakened versus the euro and the British pound on Tuesday, with investors digesting news suggesting progress over talks to resolve the U.S. fiscal cliff impasse.
The ICE dollar index DXY +0.02% , which measures the greenback’s performance against a basket of six major global currencies, moved in a narrow range from levels seen late in North America late on Monday. It was at 79.549 by late afternoon in Tokyo, compared with 79.557 in the U.S. overnight.
While equity markets in Asia rallied Tuesday, following the cues from Wall Street, the moves in the currency markets were relatively subdued. Read Asia Markets.
“Based on the price action in the financial markets, equity traders are optimistic that there will be a deal by the end of the year, but currency and bond traders are more skeptical,” said Kathy Lien, managing director at BK Asset Management.
“If we don’t receive daily updates on the fiscal cliff talks and more investors grow worried about the lack of progress, we could see further losses in all of the major currencies as investors take profit or hedge their positions before next week’s holidays,” she added.
The White House on Monday rejected Republicans’ tax and spending proposals, but in a counterproposal late Monday, offered $1.22 trillion in spending cuts and $1.2 trillion in revenue increases, according to a Reuters report citing an unnamed source. Read more about the White House’s counteroffer.
“Signs of some further flexibility on both sides reveal that negotiations over the U.S. fiscal cliff are progressing, albeit very slowly,” said Mitul Kotecha, head of global foreign exchange strategy at Credit Agricole, adding that “ chances of a deal by year-end remain slim.”
Against the Japanese currency, the dollar USDJPY +0.05% was trading at 83.98 yen, up from 83.83 late on Monday.
Meanwhile, the euro EURUSD -0.04% and the pound GBPUSD -.00% were fetching $1.3168 and $1.6212 respectively, up slightly from their overnight levels of $1.3159 and $1.6202, respectively.
The Australian dollar AUDUSD -0.14% was buying $1.0537 from $1.0548.
Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau. Follow him on Twitter @MktwKumar.
