FOREX-Elusive U.S. debt deal pushes dollar lower versus yen
* Signs of progress on U.S. fiscal talks, but deal elusive * Yen edges higher, dollar/yen off Friday's near 2-wk high By Anooja Debnath LONDON, Oct 14 (Reuters) - The dollar slipped on Monday and the yen gained from safe-haven demand over concerns the United States might default on its debt as lawmakers struggled to reach a deal before this week's deadline. The dollar slipped 0.3 percent to 98.25 yen, having touched a low of about 98.05 yen earlier in the day. The dollar retreated from a near two-week high of 98.60 yen set on Friday. The yen's liquidity makes it a relatively safe option during times of uncertainty. While negotiations in the U.S. Senate to bring the fiscal crisis to an end showed signs of progress on Sunday, failure to break the stalemate before Thursday, the deadline to raise the debt ceiling, would leave the world's biggest economy unable to pay its bills in the coming weeks. "Over the weekend it was disappointing that an agreement still hasn't been reached. We think the closer we get to the debt ceiling deadline without an agreement, dollar/yen will come under intensive selling pressure," said Lee Hardman, currency economist at BTMU. "The yen alongside the Swiss franc, safe haven currencies, should benefit if broader investor risk aversion picks up." Traders said bids for the U.S. dollar at levels near 98.00 yen helped to limit the yen's rise. The dollar was down 0.3 percent against the Swiss franc at 0.9098 francs while the euro rose 0.1 percent to $1.3558. Analysts said market players were also probably wary of betting too heavily in one direction, given the possibility of a last-minute deal which could make the dollar rally. With currencies trading in tight ranges, volatility has taken a hit. One-month euro/dollar volatility slipped on Monday to around 6.8, eyeing lows last seen in mid-September when the U.S. Federal Reserve surprised markets by refraining from trimming its stimulus, pushing vols to a six year trough. Adam Myers, senior FX strategist at Credit Agricole said that some in the market were positioning for the political gridlock to be broken just before the Oct. 17 deadline. "We think there might be a temporary extension (to the government's borrowing authority) for two, three weeks and it seems the market is coming around that view as well." "The general view in the FX and bond markets is that neither (political) party wants to be seen as not coming to any agreement so a temporary one will be passed and that should see a very small U.S. dollar relief rally and euro/dollar lower." Market holidays in Japan and partial market closure in the United States on Monday added to the subdued mood. BTMU's Hardman said the fiscal worries would support the U.S. Federal Reserve's decision to maintain its stimulus. "The more protracted negotiations are over the debt ceiling and partial government shutdown: it increases the likelihood that quantitative easing could remain in place for a longer period of time."
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