Dollar Index touches two-week high before weekend deficit talks

The Dollar Index touched a two-week high before President Barack Obama and U.S. lawmakers seek to avert the so-called fiscal cliff of more than $600 billion of tax increases and spending cuts.

The 17-nation euro fell against most of its 16 major counterparts after Italian borrowing costs increased at a debt sale and a report showed the French economy grew less than initially estimated. The yen weakened to a 28-month low versus the dollar after Japanese consumer prices and factory output declined.

“As far as the fiscal cliff goes, expectations are that a deal isn’t going to be reached by the end of the year, so that’s weighing on risk,” Eric Viloria, senior currency strategist for Gain Capital Group LLC, said in a telephone interview. “What that means for the dollar is risk-off, Treasury yields lower and dollar strength.”

The dollar strengthened 0.1 percent to $1.3224 per euro at 10:59 a.m. New York time, after rising as much as 0.5 percent, the biggest gain since Dec. 21. The U.S. currency was little changed at 86.08 yen after reaching the strongest level since Aug. 3, 2010. The euro dropped 0.1 percent to 113.86 yen.

Dollar Measure

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, added 0.1 percent to 79.673 after rising to the highest since Dec. 14.

The index will rise to 80.6 in the first quarter of 2013, according to the median estimate of economists surveyed by Bloomberg. The euro will decline to 1.28 against the dollar in that span, while the yen will rally to 83, the forecasts show.

South Africa’s rand has rallied the most against the greenback of the currency’s major peers in December, advancing 5.1 percent. Brazil’s real has gained 4.5 percent, while the yen has lost 4.2 percent.

This year, the South Korean won has returned 7.7 percent to the dollar, while Japan’s currency has slipped 10.7 percent.

Obama will hold talks today with House Speaker John Boehner and Senate Minority Leader Mitch McConnell, as well as Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats.

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