FOREX-Euro holds below 1-month high on U.S. fiscal blues

Thu Nov 29, 2012 8:16pm EST

Related Topics

* Boehner's comments dent budding hopes of U.S. budget deal

* Euro also seen under pressure from fragile euro zone economy

* Dollar/yen could fall further if U.S. budget deadlock continues

By Hideyuki Sano

TOKYO, Nov 30 (Reuters) - The euro held below a one-month high against the dollar on Friday as the market worried about the prospects for a budget deal seen as essential to preventing the U.S. economy from slipping back into recession next year.

The deadlock over the U.S. "fiscal cliff" also kept the dollar in check against the yen, although it remained near a 7-1/2 month high hit last week on speculation of more monetary easing in Japan.

"If there is no progress in the U.S. debt talk, the dollar is likely to fall below 82 yen next week," said Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo, noting recent U.S. economic data had not been as solid as before.

Top U.S. Republican lawmaker John Boehner, speaker of the House of Representatives, said on Thursday there had been no substantive progress made in resolving the U.S. budget impasse in the last two weeks.

U.S. economic growth in July-Sept was revised up to 2.7 percent on Thursday from the initial reading of 2.0 percent growth, but the revision was boosted by restocking by businesses, and consumer and business spending -- more important gauges of the economy -- were revised lower.

The dollar changed hands at 82.13 yen, flat from late U.S. levels. It has been stuck near 82 yen for the past few sessions after its rally had ran out of steam at a 7 1/2-month high of 82.84 last week.

The euro, which hit a one-month high of $1.3015 on Thursday on optimism a U.S. fiscal deal could be reached, was flat at $1.2978 in early trade.

The euro has also been helped by fall in Spanish and Italian bond yields in recent weeks, but many in the market question how far it can rise, given the euro zone's fragile economic fundamentals.

The yen fell sharply earlier this month on speculation a change in the Japanese government at a Dec. 16 election would increase the pressure on the Bank of Japan to ease its policy, although some of those expectations are now being pared back.

Opposition leader Shinzo Abe, the front-runner to become prime minister, had called for radical change in monetary policy, including unlimited easing, but some of his ideas did not make into his party's official policy platform.

"Abe seems to be toning down a bit. For now it's hard to expect him to say something that would further boost speculation of more easing," said Barclay's Yamamoto.

Still, many market players think the yen could come under selling pressure if Abe does become prime minister, limiting potential gains in the yen before the election.

"The dollar/yen is in consolidation at the moment but bids below 82 yen seem pretty strong. Many people think the dollar will eventually test 84.18, so levels below 82 would be pretty good level for entry," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

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