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FOREX-Euro up slightly; gains tenuous as U.S. fiscal deal hangs
November 29, 2012 / 5:56 PM / 5 years ago

FOREX-Euro up slightly; gains tenuous as U.S. fiscal deal hangs

* Boehner says no progress on budget talks in last 2 weeks
    * Italian yields fall, euro zone sentiment improves
    * Dollar's gains vs yen may slow
    * U.S. data boosted risk appetite


    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 29 (Reuters) - The euro slipped from one-month
highs against the dollar to trade just slightly higher on
Thursday after comments by top Republican lawmaker John Boehner
dented a spate of optimism over an agreement to avert higher
taxes and spending cuts in the world's largest economy.
    A day after expressing optimism over a U.S. "fiscal cliff
deal," Boehner, speaker of the U.S. House of Representatives, on
Thursday said there has been no "substantive" progress made in
the last two weeks. 
    Following a meeting with Treasury Secretary Timothy
Geithner, the White House's main liaison to Congress, Boehner
said Geithner had not provided a comprehensive plan for dealing
with the budget problem. 
    A deal on the U.S. budget that would avert $600 billion in
spending cuts and tax hikes due to start in early January would
improve the outlook on the economy, which would be a positive
for risk sentiment.
    "What is driving this market is still the uncertainty on the
U.S. fiscal cliff, although my position is that some kind of
resolution would be reached," said George Dowd, head of foreign
exchange at futures broker Newedge in Chicago.
     By midday New York trading, the euro was up slightly at
$1.2968, after earlier hitting a one-month high of
$1.3013 as traders also reported month-end demand for euros. The
euro hit New York session lows of around $1.2945 following
Boehner's comments.
    The euro earlier had sharply cut gains after Democratic
Congressman Chris Van Hollen told MSNBC that lawmakers were not
close to a U.S. budget deal, traders said. Van Hollen is the top
Democrat on the House Budget Committee.
    Europe's common currency had gained earlier amid positive
comments from Boehner himself on Wednesday. President Barack
Obama was also optimistic an agreement would be reached before
Christmas. 
    The euro was also boosted earlier by a drop in Italy's
10-year borrowing costs at a sale of debt on Thursday and
positive euro zone data showing sentiment on the region improved
in November.  
    Overall, though, investors were cautious about pushing the
euro higher. Some analysts warned the euro remained vulnerable
to economic data and concerns about elements of Greece's aid
deal. Greece's ability to fully implement a debt buy-back is a
looming issue.
    "I think by year-end, the euro can get down to the
$1.23-$1.24 area," Newedge's Dowd said. "That assumes that,
number one, a fiscal cliff would be averted and that would get
the dollar bid, and number two that the situation in Europe
would just muddle through."
    Against the yen, the euro was up 0.2 percent at 106.44 yen
. On Monday, the euro hit a seven-month high of 107.135
yen hit on Monday.
    U.S. data on Thursday, though slightly below expectations,
pointed to an upturn in the economy, further feeding risk
appetite and helping the euro hold gains against both the dollar
and yen.
    The government reported new claims for U.S. jobless benefits
fell for a second straight week, and in a separate report said
the economy grew by 2.7 percent in the third quarter, a faster
rate than initially estimated. 
    "The positive revision to economic growth in the third
quarter is consistent with job creation that was almost three
times faster than in the previous three months," said Joseph
Trevisani, chief market strategist at Worldwide Markets in
Woodcliff Lake, New Jersey.
    
    YEN LOSSES SLOW
    The dollar was little changed against the yen at 82.06 yen
, pulling away from a one-week low of 81.68 hit on
Wednesday.
    The U.S. currency has seen a corrective pull-back since
hitting a 7-1/2-month high of 82.84 yen last Thursday when the
yen was sold on speculation about possible aggressive monetary
easing in Japan following a likely change in government next
month.
    Main opposition leader Shinzo Abe, a front-runner to become
prime minister after the Dec. 16 election, has called for
radical change in monetary policy, including unlimited easing.
His stance sparked a 4 percent fall in the yen this month. 
    Some market players, however, were paring back expectations
of aggressive easing that would weigh on the yen and questioned
how much impact Abe would have on monetary policy.
    SEB analysts said in a note to clients that there was a risk
of disappointment after the Japanese election. Longer term, the
yen is vulnerable and could weaken substantially due to high
debt and large deficits, they said, although higher rates
outside Japan may be needed "to trigger a more sustained
weakness".

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