Reuters: US Dollar Report: FOREX-Euro up slightly; gains tenuous as U.S. fiscal deal hangs

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FOREX-Euro up slightly; gains tenuous as U.S. fiscal deal hangs Nov 29th 2012, 17:55 Thu Nov 29, 2012 12:55pm EST * Boehner says no progress on budget talks in last 2 weeks * Italian yields fall, euro zone sentiment improves * Dollar's gains vs yen may slow * U.S. data boosted risk appetite By Gertrude Chavez-Dreyfuss NEW YORK, Nov 29 (Reuters) - The euro slipped from one-month highs against the dollar to trade just slightly higher on Thursday after comments by top Republican lawmaker John Boehner dented a spate of optimism over an agreement to avert higher taxes and spending cuts in the world's largest economy. A day after expressing optimism over a U.S. "fiscal cliff deal," Boehner, speaker of the U.S. House of Representatives, on Thursday said there has been no "substantive" progress made in the last two weeks. Following a meeting with Treasury Secretary Timothy Geithner, the White House's main liaison to Congress, Boehner said Geithner had not provided a comprehensive plan for dealing with the budget problem. A deal on the U.S. budget that would avert $600 billion in spending cuts and tax hikes due to start in early January would improve the outlook on the economy, which would be a positive for risk sentiment. "What is driving this market is still the uncertainty on the U.S. fiscal cliff, although my position is that some kind of resolution would be reached," said George Dowd, head of foreign exchange at futures broker Newedge in Chicago. By midday New York trading, the euro was up slightly at $1.2968, after earlier hitting a one-month high of $1.3013 as traders also reported month-end demand for euros. The euro hit New York session lows of around $1.2945 following Boehner's comments. The euro earlier had sharply cut gains after Democratic Congressman Chris Van Hollen told MSNBC that lawmakers were not close to a U.S. budget deal, traders said. Van Hollen is the top Democrat on the House Budget Committee. Europe's common currency had gained earlier amid positive comments from Boehner himself on Wednesday. President Barack Obama was also optimistic an agreement would be reached before Christmas. The euro was also boosted earlier by a drop in Italy's 10-year borrowing costs at a sale of debt on Thursday and positive euro zone data showing sentiment on the region improved in November. Overall, though, investors were cautious about pushing the euro higher. Some analysts warned the euro remained vulnerable to economic data and concerns about elements of Greece's aid deal. Greece's ability to fully implement a debt buy-back is a looming issue. "I think by year-end, the euro can get down to the $1.23-$1.24 area," Newedge's Dowd said. "That assumes that, number one, a fiscal cliff would be averted and that would get the dollar bid, and number two that the situation in Europe would just muddle through." Against the yen, the euro was up 0.2 percent at 106.44 yen . On Monday, the euro hit a seven-month high of 107.135 yen hit on Monday. U.S. data on Thursday, though slightly below expectations, pointed to an upturn in the economy, further feeding risk appetite and helping the euro hold gains against both the dollar and yen. The government reported new claims for U.S. jobless benefits fell for a second straight week, and in a separate report said the economy grew by 2.7 percent in the third quarter, a faster rate than initially estimated. "The positive revision to economic growth in the third quarter is consistent with job creation that was almost three times faster than in the previous three months," said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, New Jersey. YEN LOSSES SLOW The dollar was little changed against the yen at 82.06 yen , pulling away from a one-week low of 81.68 hit on Wednesday. The U.S. currency has seen a corrective pull-back since hitting a 7-1/2-month high of 82.84 yen last Thursday when the yen was sold on speculation about possible aggressive monetary easing in Japan following a likely change in government next month. Main opposition leader Shinzo Abe, a front-runner to become prime minister after the Dec. 16 election, has called for radical change in monetary policy, including unlimited easing. His stance sparked a 4 percent fall in the yen this month. Some market players, however, were paring back expectations of aggressive easing that would weigh on the yen and questioned how much impact Abe would have on monetary policy. SEB analysts said in a note to clients that there was a risk of disappointment after the Japanese election. Longer term, the yen is vulnerable and could weaken substantially due to high debt and large deficits, they said, although higher rates outside Japan may be needed "to trigger a more sustained weakness". Link this Share this Digg this Email Reprints

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