FOREX-Euro hits 7-1/2 month high on signs US evades fiscal crisis

Tue Dec 18, 2012 2:09pm EST

Related Topics

* Boehner says Obama budget offer "not there yet"
    * Scope for year-end demand to test March high near $1.34
    * S&P raises Greece debt rating from selective default
    * Yen vulnerable to easing expectations

    By Julie Haviv
    NEW YORK, Dec 18 (Reuters) - The euro surged to its highest
level against the dollar in more than seven months and held
close to a nine-month peak versus the yen on Tuesday as signs of
progress in U.S. budget negotiations  broadly raised appetites
for riskier assets.
    The safe-haven dollar fell for a seventh straight day versus
the euro while global stocks rallied as investors grew
optimistic that Congress will reach a deficit reduction deal by
the end of the year.
    An agreement is needed to avoid the so-called fiscal cliff
of automatic tax increases and spending cuts next year that has
the potential to send the world's largest economy back into a
recession.
    But, U.S. House of Representatives Speaker John Boehner
emerged from a meeting with fellow Republicans on Tuesday
morning promising to press forward on talks to avert the fiscal
crisis. 
    President Barack Obama's latest offer to Republicans in the
U.S. House of Representatives is a "good faith" effort to reach
a compromise, the White House said on Tuesday. 
    "This marked a dramatic departure from the exaggerated
saber-rattling between Obama and Boehner just two weeks ago,"
said Ravi Bharadwaj, market analyst at Western Union Business
Solutions in Washington.
    Some strategists said year-end investment flows could help
the euro extend its gains to test the late-March high just below
$1.34, although concerns about the euro zone's weak growth
outlook may leave it vulnerable to selling in the new year.
    The euro was last up 0.5 percent at $1.3228 after
hitting a high of $1.3238, its strongest level since early May.
Traders said investors took out option barriers at $1.32,
prompting more euro buying. 
    The dollar index fell to a two-month trough of
79.260. The index was last quoted at 79.318, down 0.3 percent. 
    Euro strength also helped push Spanish and Italian yields
lower, further raising risk appetite. 
    The euro is up about 1.6 percent against the dollar so far
in December, partly due to faded fears of a fiscal crisis, but
mostly over fewer concerns about the euro zone's debt crisis.
    Rating agency Standard & Poor's on Tuesday raised Greece's
sovereign credit rating to B-minus with a stable outlook from
selective default, citing its European partners' efforts to keep
the country part of the euro. 
    Euro zone partners and the International Monetary Fund have
agreed to unlock 49.1 billion euros in aid by the end of March.
They made the decision to release the long-delayed installment 
after Athens passed austerity measures and completed a debt
buyback. 
    
    BANK OF JAPAN MEETING IN FOCUS
    The Japanese currency tumbled after the Liberal Democratic
Party surged back to power in an election on Sunday, fuelling
expectations the new government will drive the Bank of Japan
towards more aggressive monetary easing.    
    The dollar was last up 0.3 percent at 84.14 yen after
hitting a session peak of 84.20 and not far from a high of 84.48
yen on Monday, which was its strongest since April 2011. T r aders
cited option barriers at 84.50 yen with stop-loss buy orders
above that level.
    "The outlook for more political pressure on the Japanese
central bank is decidedly negative for the yen," said Omer
Esiner, chief market analyst at Commonwealth Foreign Exchange in
Washington.
    "However, having shed over five percent of its value against
the dollar in the last month alone, the yen may be poised for a
bit of a bounce."
    Analysts said a recovery in the yen could happen if the BoJ
disappoints those expecting more aggressive monetary easing. The
bank holds a two-day policy meeting Wednesday and Thursday.
    Speculators have sold the yen on expectations the BoJ could
adopt a more aggressive asset-buying program, but sources
familiar with the BoJ's thinking have said the most likely
option is for the central bank to increase its asset-buying and
lending program, currently at 91 trillion yen, by 5-10 trillion
yen. 
    That would fall short of expectations and could lead some
investors to shed large short positions in the Japanese
currency.
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