Yen falls with franc on bets U.S. lawmakers may resolve standoff

The yen (FOREX:USDJPY) and Swiss franc (FOREX:USDCHF) weakened on increased speculation that U.S. lawmakers may be able to reach an agreement on increasing the nation’s debt ceiling and avoid a default, which reduced demand for haven assets.

Japan’s currency fell from the strongest level in eight weeks versus the dollar after a government report showed the country’s current-account surplus unexpectedly shrank to a record for an August. The yen failed to maintain a breach of its 200-day moving average, signaling further weakness. The rand rose against all of its 16 most-traded peers.

“You have a 200-day moving average that’s acting as a support level, which, if it can hold, means that the yen will weaken,” Douglas Borthwick, the head of foreign exchange at Chapdelaine & Co. in New York, said in a phone interview. “It’s very key in terms of who’s going to win the currency-weakness war.” Support is a chart level where orders may be clustered.

The yen declined 0.4% to 97.11 per dollar at 9:35 a.m. New York time after appreciating to 96.57, the strongest level since Aug. 12. Japan’s currency dropped 0.5% to 131.91 per euro after gaining 0.9% in the previous two days. The dollar was little changed at $1.3588 per euro.

The Japanese currency strengthened yesterday for the first time since November beyond its 200-day moving average versus the greenback. The technical indicator, which some currency traders see as a potential turning point, was at 96.68 yesterday.

The franc fell 0.2% to 90.46 centimes per dollar and weakened 0.3% to 1.2294 versus the euro.

The JPMorgan Global FX Volatility Index fell to 8.7%, the lowest level since May 9, versus an average of 9.37% for 2013.

Test Vote

U.S. Senate Democrats are planning a test vote before the end of this week on a measure that would grant President Barack Obama authority to raise the $16.7 trillion debt ceiling, probably for a year, unless two-thirds of both chambers of Congress disapprove.

That plan emerged as Gene Sperling, the director of Obama’s National Economic Council, opened another route toward at least a temporary resolution. He declined yesterday to rule out a short debt-limit extension while reiterating the administration’s preference for a longer-term resolution.

Dallas Federal Reserve Bank President Richard Fisher said yesterday the U.S. “cannot afford to default.” Fisher, who doesn’t vote on policy this year, said in Dallas that “I don’t think we will default, but it will come down to the wire.”

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