FOREX-Euro rises on U.S. fiscal deal optimism, positive Europe news

Thu Nov 29, 2012 9:37am EST

Related Topics

* Italian yields fall, euro zone sentiment improves
    * Dollar's gains vs yen may slow
    * U.S. data boosted risk appetite


    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 29 (Reuters) - The euro rose for a second
straight day against the dollar on Thursday, boosted by positive
European news and increased expectations U.S. lawmakers will
agree on a deal to avert higher taxes and spending cuts in the
world's largest economy.
    U.S. House Speaker John Boehner, the top Republican in
Congress, voiced optimism that Republicans could broker a deal
with the White House to avoid the "fiscal cliff" of tax hikes
and spending cuts due to kick in early next year.
 
    President Barack Obama was also optimistic an agreement will
be reached before Christmas. 
    A deal on the U.S. budget would improve the outlook on the
economy, seen as positive for risk sentiment.
    The euro also gained as Italy's 10-year borrowing costs hit
a two-year low at a sale of debt on Thursday, helped by the view
that a deal this week on Greek debt has eased pressure on other
highly indebted euro zone countries. 
    In addition, surveys showed sentiment about the euro zone
economy improved in November. 
    "News flow has generally been positive, between progress
towards a resolution of the U.S. fiscal cliff, falling European
bond yields ... and European fundamental data turning more
positive," said Camilla Sutton, chief currency strategist at
Scotia Capital in Toronto.
    In early New York trading, the euro was up 0.3 percent at
$1.2993 near a one-month high of $1.3010 hit on Tuesday.
    Traders reported month-end demand for euros, too, but said
offers above $1.30 may limit any gains. 
    Overall though, investors were generally cautious about
pushing the euro higher. Some analysts warned the euro was still
vulnerable to economic data and concerns about elements of
Greece's aid deal, with Athens' ability to fully implement a
debt buy-back a looming issue. 
    "Besides the possibility of Spain seeking a bailout, which
would be euro-positive, there is a greater potential for
downside surprises for the euro related to the euro zone
economy," said Steve Barrow, head of G10 currency research at
Standard Bank.
    Against the yen, the euro was up 0.3 percent at 106.60 yen
, not too far from a seven-month high of 107.135 yen
hit on Monday.
    U.S. data on Thursday, though slightly below expectations,
pointed to an upturn in the economy, further feeding into the
market's risk appetite. The euro held gains against both the
dollar and yen as a result.
    Data showed U.S. jobless claims fell for a second straight
week, while the U.S. economy grew faster than initially
estimated in the third quarter. 
    "The positive revision to economic growth in the third
quarter is consistent with job creation that was almost three
times faster than in the previous three months," said Joseph
Trevisani, chief market strategist at Worldwide Markets in
Woodcliff Lake, New Jersey.
    "Despite the effects of Hurricane Sandy, the improvement
should continue into year end. Good cheer for equities and risk
traders."
    
    YEN LOSSES SLOW
    The dollar was slightly higher against the yen at 82.06 yen
, pulling away from a one-week low of 81.68 hit on
Wednesday.
    The U.S. currency has seen a corrective pull-back since
hitting a 7-1/2-month high of 82.84 yen last Thursday when the
yen was sold on speculation about possible aggressive monetary
easing in Japan following a likely change in government next
month.
    Main opposition leader Shinzo Abe, a front-runner to become
prime minister after the Dec. 16 election, has called for
radical change in monetary policy, including unlimited easing.
That sparked a 4 percent fall in the yen this month. 
    But some market players were paring back expectations of
aggressive easing that would weigh on the yen, and questioned
how much impact Abe will have on monetary policy.
    SEB analysts said in a note to clients that there was a risk
of disappointment after the Japanese election.
    However, longer term they say the yen is vulnerable and
could weaken substantially due to high debt and large deficits,
although they said higher rates outside Japan may be needed "to
trigger a more sustained weakness". 
    SEB recommend buying options to buy the dollar at 82.00 yen
in six months.
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