FOREX-Dollar rises to two-month high on fiscal worries

Wed Nov 7, 2012 10:03am EST

Related Topics

* Investors look past Obama re-election to focus on 'fiscal
cliff'
    * ECB's Draghi: euro zone to remain weak in the near term
    * Greece, Spain worries dent euro sentiment

    By Wanfeng Zhou
    NEW YORK, Nov 7 (Reuters) - The dollar rose to a two-month
high against major currencies on Wednesday as investors quickly
shifted focus to U.S. fiscal woes after President Barack Obama's
re-election, bolstering the appeal of the safe-haven U.S.
currency.
    The euro came under pressure after ECB President Draghi said
the bank expects the euro zone economy to remain weak "in the
near term," adding to investor nervousness ahead of the central
bank's policy meeting on Thursday.
    With election out of the way, the U.S. president faces a
fresh challenge confronting the "fiscal cliff," a mix of tax
increases and spending cuts due to extract some $600 billion
from the economy starting Jan. 1 barring a deal with Congress.
 
    "For the past couple of years, generally bad news,
regardless of where it happens - whether it's in the U.S. or
abroad - has been good for the dollar. And while there's
evidence that relation has moderated, it's still there," said
Ron Leven, senior currency strategist at Morgan Stanley in New
York.
    The dollar index, which tracks the greenback versus a basket
of currencies, rose 0.3 percent to 80.803, having hit as
high as 80.924, its highest since Sept. 7.
    The euro fell as low as $1.2734 on Reuters data, a
two-month low, hurt by grim economic forecasts for the euro zone
and continued sovereign debt-related worries in Greece and
Spain. It was last at $1.2760, down 0.4 percent.
Against the yen, it lost 0.9 percent to 102.03 yen.
    The currency faced further pressure ahead of a Greek
parliamentary vote on austerity measures necessary to secure the
next tranche of bailout cash, without which the country faces
bankruptcy. 
    "Uncertainty over the Greek vote and the U.S. fiscal cliff
are both major risk factors which are weighing on the euro,"
said Jane Foley, senior currency strategist at Rabobank.
    "If the Greek vote doesn't go through, there is a lot of
downside risk to the euro as talk of a Greece exit will
re-emerge."
    Prime Minister Antonis Samaras is expected to narrowly win
but the smallest party in his coalition will oppose the
measures, leaving him with a margin of just a handful of votes.
 
    The market also remained concerned that Spain could delay
seeking international aid.
    The European Central Bank will decide on interest rates on
Thursday and while no change is expected, a slew of grim data
out of the euro zone is likely to keep alive chances of further
cuts.
    Earlier in the day, the clear-cut U.S. election result
lifted stocks and riskier currencies, boosting the
higher-yielding Australian dollar rise to its highest in nearly
seven weeks and the Canadian dollar to a three-week peak.
    But that trend soon fizzled out as investors turned their
attention to the euro zone's problems and the U.S. fiscal cliff.
    Against the yen, the dollar fell to as low as 79.80 yen
 on Reuters data, well below its six-month high of 80.67
hit last week. It was last down 0.5 percent at 79.91 as yields
on U.S. Treasuries fell sharply. 
    Analysts at Morgan Stanley said they are maintaining their
bullish strategy for dollar/yen and expected a re-test of the
80.70 high, with a break above there opening the way for gains
towards their 84.00 target.
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