Dollar strengthens after Reid says U.S. may fail to avert cliff

Budget Talks

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.

Bloomberg News

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