The dollar strengthened from almost an eight-month low against the euro after Senate Majority Leader Harry Reid said the U.S. may fall off the so-called fiscal cliff that threatens the nation with recession.
The 17-nation euro climbed earlier today after French consumer confidence unexpectedly improved and Italian business sentiment increased. The yen reached a 28-month low against the dollar as John Taylor, founder and chairman of New York-based currency hedge fund FX Concepts LLC, said Japan’s currency may weaken to 90 per dollar for the first time since June 2010. Riskier assets fell, including the Standard & Poor’s 500 Index of stocks, which declined 1 percent.
“The acceleration in stock selling has benefited the dollar,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said in a telephone interview. “I would attribute it to the fiscal cliff, but also lackluster year-end trading.”
The dollar was little changed at $1.3222 per euro at 1:44 p.m. New York time, after falling as much as 0.5 percent. The yen fell 0.4 percent to 86.01 per dollar, touching the weakest level since Aug. 16, 2010. Japan’s currency declined 0.5 percent to 113.75 per euro.
Winners, Losers
South Africa’s rand has gained 4.7 percent this month against the U.S. currency, the biggest increase of the greenback’s major peers. The yen has declined 4.1 percent.
This year, the South Korean won has advanced 7.5 percent as the yen has fallen 10.5 percent.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, rose 0.1 percent to 79.71, after falling as much as 0.3 percent.
Reid said a resolution to the U.S. budget dispute before Jan. 1 appears unlikely because Republicans won’t cooperate.
“I don’t know time-wise how it can happen now,” Reid, a Nevada Democrat, said on the Senate floor today. He blamed House Speaker John Boehner and Senate Minority Leader Mitch McConnell, both Republicans.
“If it became clear that we aren’t going to have any kind of a compromise or interim agreement, then that might be negative for markets at that point and it would be dollar positive,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, said in a telephone interview. “Markets are looking for some kind of compromise.”
President Barack Obama and U.S. Congress return to Washington to resume negotiations over the fiscal cliff of more than $600 billion in automatic tax increases and spending cuts set to take effect next month. Treasury Secretary Timothy F. Geithner said there’s “significant uncertainty” around tax and spending policies, according to a letter sent to congressional leaders yesterday.
The yen slumped after Prime Minister Shinzo Abe was approved as prime minister yesterday by parliament. His Liberal Democratic party won a landslide victory in lower house elections on Dec. 16, pledging to weaken the currency.
Japan’s consumer prices excluding fresh food fell 0.1 percent in November from a year earlier, according to a Bloomberg News survey before tomorrow’s report. The Bank of Japan’s inflation target is 1 percent.
Yen Levels
Yen depreciation to “86.5 would be about as high as we’d go in this cycle,” Greg Anderson, the North American head of G- 10 currency strategy at Citigroup Inc. in New York, said in a television interview on Bloomberg Surveillance with Sara Eisen and Alix Steel. “We’ve had risk-on and we’ve hard risk-off days due to the fiscal cliff over the last month, and it hasn’t seemed to matter. The yen weakens every day.”
The yen’s 14-day relative strength index dropped to 19.7 against the dollar today and dropped to 20.2 versus the euro. A reading below 30 indicates an asset’s decline has been too rapid it is poised to rise.
An index of French household sentiment rose to 86 in December from 84 in November, the first monthly increase since May, the national statistics office Insee said. Economists forecast an unchanged reading of 84, according to a Bloomberg survey. A gauge of Italian business climbed to 88.9 from 88.5, according to Rome-based national statistics institute Istat.
The euro’s 14-day index of relative strength reached 70.6 to the dollar. A level of more than than 70 signals its rally may have been too far, too fast.
The euro has appreciated 2.9 percent in the past three months, the second best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes after the Swiss franc. The yen tumbled 10.5 percent and the dollar added 0.3 percent.
