September 25, 2013 / 1:51 PM / 4 years ago

FOREX-Dollar weakens as U.S. budget woes weigh

3 Min Read

* Dollar slips as US govt shutdown concerns leave traders wary

* Euro helped by solid German, Italian confidence data

* But euro gains seen limited due to ECB policy uncertainty

By Gertrude Chavez-Dreyfuss

NEW YORK, Sept 25 (Reuters) - The dollar fell on Wednesday after four sessions of gains, weighed down by worries about gridlock in Washington on the U.S. budget that could lead to a government shutdown next week.

U.S. congressional officials must reach a budget deal by Monday that would allow the government to keep running, but negotiations have been contentious so far.

"The risk of a government shutdown next week is certainly being felt by the market. We are in the initial stages and right now, the dollar is getting hit," said Greg Moore, currency strategist at TD Securities in Toronto.

In early New York trading, the dollar fell 0.1 percent against a basket of currencies to 80.473.

The euro was up 0.2 percent at $1.3497. It was helped by data showing consumer confidence in Germany at a six-year high and morale in Italy at its strongest in more than two years.

This took the euro to a session peak of $1.3519, closer to last week's high of $1.3569, hit after the Federal Reserve's surprise decision to keep its bond-buying stimulus intact. Traders reported strong chart support at $1.3450.

A lack of clarity over how long the U.S. central bank will delay scaling back stimulus has also weighed on the dollar.

However, euro gains were expected to be limited by concerns about the possibility of more euro zone monetary easing after European Central Bank President Mario Draghi this week spoke of the possibility of the ECB providing more cheap long-term loans.

"There are so many uncertainties ... This is making people reluctant to go back into risk," said Ian Stannard, head of European currency strategy at Morgan Stanley.

The dollar was down 0.25 percent against the Japanese yen at 98.46 yen, pressured by an easing in U.S. government bond yields.

But the dollar rose against higher-yielding and riskier currencies. The Australian dollar was down 0.3 percent at $0.9362 while the New Zealand dollar - which was also pressured by a jump in the country's trade deficit - fell 0.6 percent to $0.8226.

A U.S. durable goods report for August came in slightly higher than expected on Wednesday, with the headline number rising 0.1 percent, compared with expectations for a flat reading.

Andrew Wilkinson, chief economic strategist, at Miller Tabak & Co in New York thinks the data does not point to an acceleration of economic activity at this stage.

"The report argues in favor of the FOMC's recent decision to await further data points that might indicate sustainability of demand," he said.

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