* Euro and yen gain after U.S. CPI data
* Euro hits highest against dollar since early May
* Hopes ebb on resolving U.S. 'fiscal cliff'
* Investors expect big LDP win in Sunday Japan election
By Julie Haviv
NEW YORK, Dec 14 The dollar fell from a near
nine-month high against the yen while the euro surged to its
highest against the greenback since early May on Friday as U.S.
inflation data affirmed the Federal Reserve's ultra-easy
The dollar dropped for a fifth straight day against the euro
after a U.S. report showed prices fell in November for the first
time in six months. The Fed, for the first time in its history,
on Wednesday announced it would link its policy to the level of
joblessness and inflation.
The U.S. central bank said it expected to hold interest
rates near zero until the unemployment rate falls to at least
6.5 percent, as long as inflation does not threaten to break
above 2.5 percent.
"The inflation data continues to be benign and there is very
little in the way of price pressures in the economy," said
Omer Esiner, chief market analyst at Commonwealth Foreign
Exchange in Washington. "That therefore justifies the Federal
Reserve's action to keep a very accommodative monetary policy."
The euro was track for its biggest weekly gain against the
dollar since the week Sept. 16 after reaching a high of $1.3173,
its highest since early May. It was last at $1.3164, up
0.7 percent on the day.
The euro climbed to an eight-month high of 109.98 yen
and last traded at 109.82 yen, up 0.4 percent on the
day. Option barriers were reported at 110 yen.
"There's a race to cheapen currencies and I don't think the
U.S. is going to win," said Rick Rieder, chief investment
officer, BlackRock Fundamental Fixed Income, speaking at a media
briefing on Wednesday. BlackRock has $3.6 trillion in assets
under management. "Places like Europe and Japan will win the
race to cheapen their currencies."
Euro gains, however, could be limited in the coming weeks as
investors fret about the "fiscal cliff".
If Congress fails to reach a deficit reduction deal by the
end of the year it would automatically trigger massive spending
cuts and tax increases in 2013 that could push the nation into
The fiscal cliff, however, should buoy the dollar due to its
status as a safe-haven and hurt currencies perceived as riskier.
With talks between President Barack Obama and House of
Representatives Speaker John Boehner at an apparent standstill,
analysts said on Friday it was increasingly likely Washington
won't be able to reach a deal before Jan. 1.
Little progress was expected on Friday, with Boehner set to
return to his congressional district in Ohio for the weekend.
The dollar fell 0.3 percent to 83.42 yen, having
risen as high as 83.96, its highest since March 21, according to
Reuters data. Still, it was not far from its March 2012 peak of
84.17, which is seen as a major resistance level.
Traders cited an options barrier at 84 yen as the options
market still shows increasing bias for yen weakness with
investors buying yen puts.
Bets that the yen will weaken had risen significantly as
Japan looked set to get a prime minister keen to push for the
central bank to print more money to stimulate the moribund
Japanese media reported the conservative Liberal Democratic
Party is set for a resounding victory in elections on Sunday,
cementing speculation LDP leader Shinzo Abe will be in a strong
position to push for bold monetary easing.
Against the yen, the dollar has risen around 4 percent in
the last four weeks and there are technical signs the pair has
risen too far too fast, with its 14-day relative strength index
standing well above the "overbought" mark of 70.
Some said the yen may rally further next week if the Bank of
Japan underwhelms investors at its next meeting. The BoJ is
widely expected to loosen monetary policy, although there is
scope for market players to be disappointed by the amount of
assets it decides to purchase.