* Euro poised to notch worst loss vs dollar since May 2012
* Concerns about Italian political deadlock weigh on euro
* IMF to cut growth forecasts if U.S. spending cuts emerge
* Japan nominates Kuroda as next BoJ chief, as expected
By Julie Haviv
NEW YORK, Feb 28 The dollar rose against the
euro on Thursday as investors embraced safety against the
backdrop of a political stalemate in Italy and with the United
States only hours away from sweeping, automatic spending cuts
that are expected to take a toll on the global economy.
Month-end flows made for choppy price action, with the euro
poised to end February about 3.6 percent lower against the
dollar, which would mark its worst monthly performance since
Political instability in Italy, the euro zone's third
largest economy, could continue to pressure the euro.
"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.
There are fears that a lack of commitment to economic
reforms in Italy could reignite the euro zone debt crisis, now
in its fourth year. Because of the size of the Italian economy,
the European Central Bank may offer support should the debt
crisis take a turn for the worse.
In Washington, positions hardened between President Barack
Obama and Republican congressional leaders over the budget
crisis even as they arranged to hold last-ditch talks to prevent
the harsh automatic spending cuts due to begin on Friday.
U.S. politicians appeared resigned to onset of
the $85 billion in "sequestration" cuts.
"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 International Monetary Fund said it will likely cut its
growth forecasts for the United States and the global economy if
the spending cuts do take effect. It warned that the United
States' biggest trading partners would be hardest hit.
The euro last traded at $1.3084, down 0.4 percent on
the day, but above the session low $1.3055.
The euro held above a near eight-week low of $1.3017 hit on
Tuesday after the inconclusive Italian elections. Options
barriers ahead of $1.3160 could limit any gains.
"It has been a long week already," said Jens Nordvig, global
head of currency strategy, at Nomura Securities in New York.
In addition to the shock from the Italian elections this
week, the Bank of Japan named a new governor and Federal Reserve
Chairman Ben Bernanke committed to sticking to the U.S. central
bank's bond-buying program in testimony before Congress.
Bernanke's remarks blunted concerns about an early exit of
the Fed's quantitative easing and helped Treasury yields move
"Meanwhile, the dollar is at quite strong levels in a number
of crosses, and we think there is an opportunity to be
tactically short for the next one to two months," Nordvig said.
"Key reasons involve a fairly weak U.S. data picture, persistent
QE from the Fed, and a risk environment which is still fairly
Some market players expect 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 120.84
yen, down 0.3 percent on the day, but above a five-week low of
118.74 yen set on Monday.
U.S. DATA SHOWS IMPROVEMENT
The dollar briefly reacted to data showing anemic U.S.
economic growth in the fourth quarter, although a slightly
better performance in exports and fewer imports led the
government to scratch an earlier estimate that the economy had
The government also reported a drop in new U.S. 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 92.34 yen,
up 0.1 percent on the day, according to Reuters data.
The yen showed little reaction after Japan's prime minister,
as expected, nominated Haruhiko Kuroda, president of the Asian
Development Bank, as governor of the Bank of Japan and academic
Kikuo Iwata as one of the bank's 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 greenback is poised to end February about 0.7 percent
higher against the yen, notching its fifth straight monthly
The dollar has risen steeply against the yen since November,
hitting a 33-month high of 94.76 yen on Monday, according to