* U.S. Congress approves deal to avoid "fiscal cliff"
* Euro/yen hits 18-month peak, euro/dollar eyes 9-month high
* Dollar/yen hits 29-month high, more weakness likely
By Anooja Debnath
LONDON, Jan 2 The yen fell to a 18-month low
against the euro while the dollar struggled against
growth-linked currencies on Wednesday after U.S. lawmakers
passed a bill to avoid a "fiscal cliff" of tax rises and
Traders said the passage of the bill removed a major
uncertainty hanging over markets in the near term, lifting
demand for riskier assets such as stocks and commodities and
triggering a sell-off in safe-haven government bonds.
Like the yen, the highly-liquid dollar -- a currency bought
in times of market stress or economic uncertainty -- came under
pressure and fell against the euro and the Australian dollar.
Further weakness was expected in the U.S. currency as more
investors with fresh budget allocations return after the
Lawmakers approved on Tuesday a deal preventing huge tax
hikes and spending cuts that would eventually have pushed the
world's largest economy into recession.
That provided relief and the euro rose as high as 115.995
yen on trading platform EBS, its highest against the
Japanese currency since July 2011. After trimming gains, the
euro was up about 0.8 percent for the day at 115.44 yen, with
option barriers cited at 116 yen.
The euro was up 0.6 percent at $1.3280, not far from
the 8-1/2 month high of $1.33085 hit on Dec. 19. Traders cited
stop loss buy orders above $1.3310 with option barriers at
"Clearly the markets have turned more risk-seeking this
morning with the worst of the fiscal cliff avoided," said Adam
Cole, global head of FX strategy at RBC Capital Markets. "That
has left the dollar and yen weaker and it is going to be hard to
fight that trend in the near term."
He added that lingering concerns about spending cuts, which
were delayed for two months, and over the government's borrowing
limit have taken the back seat for now.
"Those issues are off the agenda for a couple of months and
markets will remain risk-tolerant and that will be dollar
negative," Cole added.
The dollar rose to 87.335 yen, its highest since late
July 2010. The dollar was last up 0.5 percent on the day at
The yen's slide started earlier in Asian trade on Wednesday
as it became increasingly likely that the "fiscal cliff" would
The increase in investor risk appetite added to pressure on
the yen, which has been hurt by expectations a new Japanese
government led by Prime Minister Shinzo Abe will push the Bank
of Japan into more forceful monetary easing to beat deflation.
"I would think there is more scope for yen weakness," said
Sim Moh Siong, FX strategist for Bank of Singapore, adding that
one caveat to this happening was the unresolved U.S. debt
Some strategists said that for yen weakness to persist, the
Japanese government would need to deliver on its promises of
pushing for aggressive monetary easing.
"What we see now is the yen being heavily sold on
expectations that there will be material change in policy,"
RBC's Cole said.
"I don't want to bet against yen weakness in the near term
but in the long term I still have my reservations of what can
actually be achieved with policy in Japan. Eventually some of
this short yen positioning might unwind and dollar/yen could
Speculators' bets against the yen hit more than five-year
peaks in December but have eased in the past two weeks.