* Yen close to 20-month low versus dollar
* Abe to become Japan's prime minister on Wednesday
* U.S. fiscal talks impasse seen supporting dollar into
By Gertrude Chavez-Dreyfuss
NEW YORK, Dec 24 The dollar skidded on Monday in
thin trading as investors locked in profits ahead of the
Christmas holiday, although losses could be limited by continued
uncertainty about the ongoing U.S. budget talks to avert a toxic
mix of higher taxes and spending cuts.
The greenback tends to benefit as a safe haven from any bad
news on the U.S. fiscal front.
The yen also weakened, trading near a 20-month low against
the dollar, after incoming prime minister Shinzo Abe heaped
fresh pressure on the Bank of Japan to adopt a higher inflation
target. Abe said on Sunday he would try to revise a law
guaranteeing the BoJ's independence if his demand for a binding
2 percent inflation target -- double its current goal -- is not
"It's mostly position adjustment for the dollar more than
anything else because last Friday, the dollar rallied," said
Omer Esiner, chief market analyst, at Commonwealth Foreign
Exchange in Washington.
On Friday, the dollar firmed across the board as investors
sought safety, worried about America's failed fiscal cliff
talks. That diminished investors' appetite for riskier assets.
News that Republican Speaker of the House John Boehner was
unable to muster enough votes among his own party for his "Plan
B" alternative to President B arack O bama's proposal spooked the
"Negotiations behind closed doors are likely continuing and
some type of deal to avoid a major fiscal crisis is still
possible," Esiner said. "However, every passing day increases
the risk of going over the cliff, which remains positive for the
dollar in the near-term."
The euro was up 0.2 percent on the day at $1.3212.
Offers were c ited above $1.3240. It hit an eight-month high of
$1.33085 last Wednesday after speculators cut bets against the
currency in recent weeks.
The dollar index was down 0.1 percent at 79.509
Against the yen, the dollar was up 0.6 percent on the day at
84.68 yen. Chartists said the dollar needed to overcome
85.05 yen, its 200-week moving average, for it to sustain
"There has been some pretty significant yen selling all
through the night and into this morning," said Peter Kinsella,
currency strategist at Commerzbank.
"It is very noticeable we have not seen any retracement or
dip in dollar/yen at all. The market is really saying they are
convinced on yen weakness and that is what we are going to see
for the remainder of this year and in the course of next year."
The U.S. currency hit a 20-month high of 84.62 yen last
Wednesday as the yen fell after a landslide election victory for
Abe's Liberal Democratic Party.
Abe, set to become Japan's prime minister on Wednesday, has
called for aggressive monetary stimulus by the BOJ to beat
deflation and this has dragged on the yen.
However some strategists said further dollar gains against
the yen could be limited, given the extremely bearish
positioning on the Japanese currency.
The yen also fell against the euro. The single currency was
up 0.7 percent on the day at 111.85 yen, not far from
a 16-month high of 112.59 yen, hit on Dec. 19.
Strategists said developments on the Italian elections and
Greece could see it grind higher in thin year-end trading.
However, if an impasse over the so-called U.S. "fiscal cliff"
deepened, investors could sell it for the more liquid dollar.
Some U.S. lawmakers voiced concerns on Sunday that the
country would go over cliff, triggering tax increases and
spending cuts early next year that could push the economy back
Focus has shifted to Congress acting after Jan. 1.
Marc Chandler, global head of FX strategy at Brown Brothers
Harriman in New York, believes the U.S. government will go over
the cliff in January, but a deal will be eventually worked out.