FOREX-Dollar rallies to one-month high on debt deal optimism
* Signs of progress in U.S. debt talks ease default fear
* Dollar hits one-month high versus currency basket
* Rises 0.8 pct to hit one-month high versus Swiss franc
* RBA minutes help Australian dollar to 4-month high
NEW YORK, Oct 15 (Reuters) - The dollar climbed to a one-month high against a basket of currencies on Tuesday, buoyed by optimism that U.S. lawmakers could soon reach a deal to avert a U.S. debt default.
U.S. Senate Majority Leader Harry Reid, a Democrat, said he and his Republican counterpart Mitch McConnell had made "tremendous progress" in talks, and suggested a deal could come as early as Tuesday.
The comments raised expectations of a deal before a Thursday deadline to raise the U.S. debt ceiling. A source said the plan would end a partial government shutdown and cover the country's borrowing needs at least through mid-February.
"There is a glimpse of good news from the U.S. government and markets are adding to risk positions," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.
The dollar index last traded up 0.5 percent at 80.667, after climbing as high as 80.703, its highest since Sept. 18.
The dollar touched a two-week high against the yen of 98.70 yen, with gains at the session peak marking the 50 percent Fibonacci retracement of the move from the Sept 11 peak to the Oct 8 low. It last traded at 98.65 yen, up 0.1 percent.
The dollar rose to a one-month high against the safe-haven Swiss franc of 0.9177 francs. The dollar was last up 0.7 percent at 0.9164 francs.
The dollar also rose against the euro, which failed to benefit from a survey showing better than expected German analyst and investor sentiment.
The euro fell 0.6 percent on the day and last traded at $1.3483 after touching a two-week low of $1.3478 early in the day.
And there was a hint of caution about any deal.
"In order for Congress to get to the finish line, both the Senate and House have to sign the bill and with 2 days to go before the U.S. reaches its borrowing limit, it is still not clear if conservative House Republicans will support the bill," said Kathy Lien, managing director at BK Asset Management in New York.
Analysts said the negative impact of the shutdown on the U.S. economy would encourage the Federal Reserve to further delay scaling back monetary stimulus, making the dollar's longer-term prospects less rosy.
"If we get some kind of temporary resolution in the U.S. it will have a small positive short-term impact on the dollar. But in the medium term this is clearly dollar negative," said Richard Falkenhall, currency strategist at SEB in London.
Ian Stannard, head of European FX strategy at Morgan Stanley in London, said the prospect of U.S. central bank asset purchases staying at current levels for longer could keep higher-yielding currencies like the Australian dollar well supported, potentially lifting it towards $0.9660.
The Australian dollar hit a four-month high against the greenback, helped by Reserve Bank of Australia minutes which showed no urgency to lower interest rates.
The Australian dollar was last up 0.4 percent at US$0.9525.
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