FOREX-Euro falls, yen rises as Boehner drops "fiscal cliff" plan

Thu Dec 20, 2012 11:43pm EST

Related Topics

* Boehner fails to muster Republican support for his bill

* Uncertainty on fiscal cliff talks dents risky assets

* Thin year-end markets exacerbate FX swings -analyst

* Some players hold on to hope for eventual deal

By Masayuki Kitano

SINGAPORE, Dec 21 (Reuters) - The euro fell against the dollar on Friday as Republican House Speaker John Boehner abandoned his bill to avoid the "fiscal cliff", conceding there weren't enough votes for it in the chamber.

House Republicans' refusal to support the bill was seen a rebuke for the speaker who passed the initiative back to President Barack Obama.

The latest twist threw into disarray attempts to head off $600 billion worth of indiscriminate tax hikes and spending cuts that could push the U.S. economy into recession next year.

The renewed jitters over the fiscal cliff dented risky assets and currencies and lifted the safe-haven U.S. dollar.

The euro fell 0.4 percent to $1.3195, pulling away from an eight-month high of $1.33085 that had been hit on Wednesday on trading platform EBS.

"The market is jittery and unsure about what might happen," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.

Some market players, however, were still holding out hope for an eventual compromise, he said, adding that currency swings were being exaggerated in thin year-end market conditions.

The yen, which has been pressured by market expectations that a new Japanese government would push the Bank of Japan into more forceful monetary easing, regained a bit of ground as risk appetite fell.

The dollar fell 0.6 percent to 83.91 yen, pulling away from a 20-month high of 84.62 yen struck on Wednesday. The euro slid 0.9 percent to 110.72 yen, down from a 16-month peak of 112.59 yen hit on Wednesday.

Boehner cancelled a vote on his proposal, which would have put Republicans on record as supporting a tax increase on those who earn more than $1 million per year, after failing to round up enough support from his party.

Even with time running out before a year-end deadline, market players said the chances of a deal could not be ruled out.

The White House and Republicans are likely to press on with efforts to reach a compromise, said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.

"I don't think either side wants to take the risk of seeing the economy worsen and unemployment rise," Tomita said.

"I think efforts will be made to search for a compromise to limit the impact of the cliff, for example to about 30 or 50 percent rather than the 100 that could result if there were a straight drop off of it," he added.

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.