* Euro holds near 7-1/2 mth peak vs USD, 14-mth high vs yen
* Aussie dlr underperforms despite improving risk sentiment
* Progress in U.S. fiscal talks boost hopes of a deal
* BOJ kicks off 2-day meeting, expected to ease policy
By Ian Chua
SYDNEY, Dec 19 The euro hovered at multi-month
highs against the dollar and yen on Wednesday, having extended
recent gains as tentative signs of progress in the U.S. fiscal
talks bolstered demand for riskier assets.
The Australian dollar, however, barely budged in part
because currency speculators were already holding record long
positions in the currency.
The euro was at $1.3224, not far off the overnight
high of $1.3238 -- a level not seen since May. Against the yen,
it fetched 111.35, having scaled a 14-month peak
around 111.48, near the Oct 2011 high of 111.57.
"We believe the year-end position squeeze is the main driver
of the euro's broad outperformance at the moment, especially as
both valuations and positioning are starting to appear stretched
for the high-beta currencies," analysts at BNP Paribas wrote in
"Unless U.S. fiscal cliff talks take an unexpected turn for
the worse, we believe that EUR/USD will meet our 1.3300 year-end
Hopes are high that a deal will be struck between President
Barack Obama and House of Representatives Speaker John Boehner
to prevent the economy from going over the 'fiscal cliff'. Both
sides have made compromises in recent days and the White House
remained confident of an agreement.
The dollar managed to hold its ground against a broadly
weaker yen, which remained friendless as markets positioned for
the Bank of Japan to ease monetary policy on Thursday.
The BOJ kicks off its two-day meeting on Wednesday and is
under intense political pressure to expand its asset-buying
programme aggressively to snap the world's third-biggest economy
out of its fourth recession since 2000.
The dollar stood at 84.19 yen, not far off a 20-month
high of 84.55 set Monday.
Markets will also be keeping an eye on Japan's trade figures
due at 2350 GMT, which could add to the case for bold policy
action from the BOJ. The country's exports have been hurt by a
fallout from a diplomatic row with China and feeble global
The standout among the major currencies was perhaps the
underperformance of the Australian dollar, which slipped on the
greenback despite the 'risk-on' market environment.
Traders said further gains were limited for the Aussie given
that many speculators already hold bullish positions and need
fresh impetus to put on more.
The Australian dollar was at $1.0532, having
stalled just below $1.0600 since its rally from the November low
of $1.0287 ran out of steam a week ago.
It was still some way off its 2012 peak around $1.0857 and
its post-float high of $1.1081 set in mid-2011.