FOREX-Dollar limited by investors fears on U.S. budget impasse
* Dollar slips as US govt shutdown concerns leave traders wary
* U.S. Q2 final GDP due at 1230 GMT
* Euro hurt by renewed Italian political tensions
* Japan corporate tax-cut hopes lead to yen-selling
LONDON, Sept 26 (Reuters) - The dollar struggled to make considerable gains against a basket of currencies on Thursday, weighed by the ongoing U.S. budget impasse which could lead to a possible federal debt default.
The U.S. currency, however, inched higher against the euro, which was hurt by renewed political tensions in Italy.
Investors were wary of buying the dollar while the U.S. Congress struggled to avert a government shutdown next week. The dollar was up 0.1 percent against a basket of currencies at 80.453, still near a 7-month trough of 80.06 hit on Sept. 18.
But the market also refrained from aggressively selling the dollar which has rallied when past impasses were resolved as, on balance, this one is expected to be.
Still, congressional officials must reach a budget deal by Monday that would allow the government to keep running, but negotiations have been contentious so far.
"On a trade weighted basis, the dollar is under pressure with the (debt ceiling) debate coming to action. We expect this to continue if there is a further stalling in negotiations," said Chris Walker, strategist at Barclays Capital. "Markets expect a resolution to be announced by the end of the week."
The dollar has also struggled since the Fed stunned markets last week by deciding not to scale back its massive stimulus yet, a decision which cast some doubt on whether markets have been too optimistic on the U.S. economy.
The final reading of U.S. second quarter gross domestic product is due 1230 GMT, followed by a key non-farm payrolls report next week.
Stronger-than-expected data would likely reignite speculation that the Fed could announce a stimulus reduction in December, or even next month, supporting the dollar.
The euro fell against the dollar after Italy's ongoing political crisis flared up and threatened to topple it shaky ruling coalition.
The euro was down 0.2 percent at $1.3498.
Against the yen, the dollar was up 0.2 percent at 98.72 yen but still not far from a one-week low of 98.27 yen touched earlier in the day. Large options expiries were reported at 95.0 yen, 99.0 yen and 100.0 yen.
The dollar earlier rose to as high as 99.12 yen on news that the Japanese government plans to say it will "urgently consider" cutting the corporate tax rate when it compiles a stimulus package next week, according to a media report.
A government source told Reuters last week that Japan will consider cutting corporate taxes and ending a temporary tax hike earlier than scheduled, as a means to cushion the economy from a scheduled sales tax increase.
"There was a Kyodo News headline this morning that Japan will urgently consider cutting the corporate tax rate, and while this was not new, and any change is unlikely to be implemented immediately, some took it as a fresh reason to sell yen," said Masashi Murata, senior FX strategist at Brown Brothers Harriman.
That would add up to more stimulus than previously expected for the economy and helped push Japan's benchmark stock index, Nikkei, higher.
"Corporate tax cut is helping the Nikkei. Given the Nikkei's correlation with dollar/yen, this helped the pair this morning," said Kiran Kowshik, currency strategist at BNP Paribas.
- Special Report: Thailand secretly supplies Myanmar refugees to trafficking rings |
- UPDATE 2-China bars banks from bitcoin transactions
- The 10 Most Corrupt and Least Corrupt Countries in the World
- Obama says he's not allowed iPhone for 'security reasons'
- China's airspace zone has caused apprehension: Biden |