The Japanese yen and U.S. dollar strengthened as investors sought perceived safety on concern U.S. deficit- reduction talks will fail to avert spending cuts and tax increases that threaten to push the economy into a recession.
The 17-nation euro pared a weekly advance versus the greenback after House Republican leaders canceled a scheduled vote on Speaker John Boehner’s plan to allow higher tax rates for annual incomes above $1 million. The shared currency declined the most in two weeks after a report said Italian Prime Minister Mario Monti will resign. The New Zealand dollar led declines in higher-yielding currencies.
“We’ve seen the more sensitive risk currencies get hit,” Dan Dorrow, head of research in Stamford, Connecticut, at Faros Trading LLC, said in a telephone interview. “To actually get an agreement with the Democrats and Obama is going to take more time and add more uncertainty around the fiscal cliff.
The yen strengthened against all its major counterparts, appreciating 0.5 percent to 111.16 per euro at 10:22 a.m. New York time. The dollar added 0.4 percent to $1.3192 per euro, paring its weekly loss to 0.2 percent. It weakened 0.2 percent to 84.25 yen.
The South African rand leads all major currencies this month against the greenback, appreciating 4.1 percent. The yen has fallen the most out of 16 counterparts versus the dollar, decreasing 2.1 percent.
South Korea’s won has appreciated more than all of its peers versus the dollar this quarter, adding 3.5 percent. The Norwegian krone has been the second-biggest gainer, increasing 2.9 percent.
The Brazilian real has lost 10.1 percent versus the dollar in 2012, while the yen has declined 8.7 percent. The Mexican peso leads all 16 of the dollar’s biggest peers with a gain of 8.3 percent.
Implied volatility, which signals the expected pace of currency swings, for the currencies of Group of Seven nations was at 7.63 percent, after reaching 7.09 percent on Dec. 17, its lowest closing level since July 2007, according to a JPMorgan Chase & Co. index. Lower volatility makes investments in currencies with higher benchmark lending rates more attractive because the risk in such trades is that market moves will erase profit.