* Fears grow about political gridlock in Italy
* Euro hits six-week low versus dollar
* Yen soars after falling to more than 33-month low
By Wanfeng Zhou
NEW YORK, Feb 25 The euro fell to a more than
six-week low against the dollar on Monday, while the yen soared
broadly as worries about political gridlock in Italy spurred
investors to seek refuge in the U.S. and Japanese currencies.
With more than two-thirds of the vote counted, the
projections suggested the centre left could have a slim lead in
the race for the lower house of parliament. But no party or
likely coalition appeared to be able to form a majority in the
upper house or Senate.
A deadlocked parliament could threaten Italy's economic
reforms and reignite the euro zone debt crisis. Optimism the
worst of the region's crisis was over benefited the euro earlier
The yen, at one point, soared more than 3 percent against
the euro and 2 percent against the dollar. Steep losses in the
yen in recent months on bets of further monetary easing in Japan
have made it vulnerable to sharp reversals.
"Considering the substantial short yen positioning, I don't
think it's completely surprising to see the move," said Vassili
Serebriakov, currency strategist at BNP Paribas in New York. "If
you look at what's been moving, the largest move is really
The euro fell as low as $1.3047 on Reuters data, the
lowest since Jan. 10. It was last down 0.8 percent at $1.3075.
Against the yen, the euro hit 118.86 yen, the
weakest since Jan. 24. It was last at 120.03, down 2.5 percent.
The deputy head of Italy's center-left Democratic Party (PD)
dismissed talk of new elections on Monday and said his coalition
should win a lower house majority and would have the
responsibility of trying to form a government, despite deadlock
in the Senate.
"We're seeing a general pullback in risk," said Michael
Woolfolk, senior currency strategist at BNY Mellon in New York.
Besides Italy's elections, he said Fed Chairman Ben
Bernanke's speech and a flurry of economic data from the major
countries this week also contributed to a more cautious attitude
The euro could continue to lose ground if risk appetite
abates. U.S. President Barack Obama and Congress remain
deadlocked over how to prevent $85 billion in automatic
government spending cuts set to start taking effect on March 1.
The dollar lost 1.7 percent to 91.75 yen, reversing
earlier gains that drove it to a more than 33-month high of
94.76 yen, according to Reuters data.
The yen weakened after news that Japan's prime minister is
likely to nominate an advocate of aggressive monetary easing,
Asian Development Bank President Haruhiko Kuroda, as the next
central bank governor to step up his fight to finally rid the
country of deflation.
Abe's repeated calls for more forceful central bank action
are largely behind the yen's nearly 20 percent loss in value
against the dollar since November.
"The news all but ensures that the BoJ will continue on an
expansionary path of monetary easing to help kick-start the
world's number three economy," said Omer Esiner, chief market
analyst at Commonwealth Foreign Exchange in Washington D.C.
Despite Monday's gains, some analysts said the yen would
remain on a weakening trend, although the dollar would face
resistance at the psychologically important level of 95 yen.
BNY Mellon's Woolfolk said the yen tends to get a boost
between late February and mid March as Japanese investors
repatriate cash ahead of Japan's fiscal year end in March.
Sterling edged up 0.2 percent to $1.5161, hitting
its lowest level since July 2010 after the UK lost its prized
triple-A credit rating on Friday.
Moody's cut Britain's rating by one notch to Aa1 from Aaa,
citing weak prospects for economic growth.
The pound also looked vulnerable on expectations the Bank of
England could expand its quantitative easing further to bolster
the fragile UK economy.