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

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.”