* Concerns about Italian political deadlock weigh on euro
* Focus on U.S. fiscal spending cuts
* Japan nominates Kuroda as next BOJ chief as expected
* U.S. economy barely grows in fourth quarter
By Julie Haviv
NEW YORK, Feb 28 The dollar rose against the
euro and yen on Thursday as investors embraced its safety
against the backdrop of a political stalemate in Italy and less
than 24 hours before automatic spending cuts are enacted in the
While month-end flows should translate into choppy flows
during the session, the euro's upside is seen as limited by
concerns political instability will stall Italian economic
reforms and reignite the euro zone debt crisis.
Investors fear the uncertain situation in Italy, the euro
zone's third-largest economy, could reignite the bloc's crisis,
now in its fourth year. The European Central Bank may offer
support should the debt crisis take a turn for the
"Investors are worried about Italy whose election stalemate
this week left unresolved the country's commitment to economic
reforms," said Joe Manimbo, senior market analyst at Western
Union Business Solutions in Washington D.C.
"On this side of the Atlantic, meanwhile, big U.S. budget
cuts could come as soon as Friday," he said.
Positions hardened between U.S. President Barack Obama and
Republican congressional leaders over the budget crisis even as
they arranged to hold last-ditch talks to prevent harsh
automatic spending cuts beginning this week.
U.S. politicians appear to be resigned to the $85 billion in
"sequestration" cuts starting on Friday.
"Given past experience, many investors have clung to hopes
that Washington might strike an 11th hour deal to avoid the big
spending cuts or cobble together a plan in the coming weeks to
blunt the impact on the economy," Manimbo said.
The euro last traded at $1.3098, down 0.3 percent on
the day, but slightly above the session low $1.3092.
It held above a near eight-week low of $1.3017 hit on
Tuesday after inconclusive Italian elections, while reported
options barriers ahead of $1.3160 could limit any gains.
Despite wariness over the political situation, some
strategists said there would be some support for the euro around
these levels as many investors were confident the European
Central Bank would step in if the crisis worsened.
"There's a lot of uncertainty out there from people who
think Europe is going back to the bad old days, but we don't
think that's the case" said Gavin Friend, currency strategist at
National Australia Bank.
"Investors are going to be slightly more cautious but
there's a chance of a bottom (in the euro) forming here."
Many market players expected the euro to remain range-bound
over the next couple of weeks while awaiting more clarity on
Italy. Strong support was seen around the 2013 low of $1.2997
hit in early January.
Against the yen, the euro last traded at 120.94
yen, down 0.2 percent on the day, but above a five-week low of
118.74 yen set on Monday.
U.S. DATA WEIGHS
The dollar briefly fell against the yen after data showed
the U.S. economy barely grew in the fourth quarter although a
slightly better performance in exports and fewer imports led the
government to scratch an earlier estimate that showed an
Another report showed a drop in new claims for unemployment
benefits last week, adding to a string of data that suggests the
economy improved early this year.
Against the yen, the dollar last traded at 92.28 yen,
up 0.1 percent on the day, according to Reuters data.
The yen showed little reaction after Japan's prime minister
nominated, as expected, Asian Development Bank President
Haruhiko Kuroda as BOJ governor and academic Kikuo Iwata as one
of the two deputy governors.
The Japanese parliament is expected to approve the
nominations, clearing the way for the central bank to unveil
fresh easing steps in April, which could add to pressure on the
The dollar has risen steeply against the yen since November,
hitting a 33-month high of 94.76 yen on Monday.