* Dollar index flounders at 8-month lows as euro rallies
* ECB, Italian politics support common currency
* Kiwi a standout performer thanks to hawkish-sounding RBNZ
By Ian Chua
SYDNEY, Oct 3 The dollar languished at
eight-month lows early in Asia on Thursday as the U.S.
government shutdown dragged on, while positive developments in
Italian politics and a watchful but patient European Central
Bank helped lift the euro.
The common currency rose as high as $1.3608, a level
not seen since early February, after Italian Prime Minister
Enrico Letta won a confidence vote in parliament as Silvio
Berlusconi backtracked on threats to bring down the government.
Adding to the euro's momentum, the European Central Bank
simply reiterated it was ready to use any policy option to
temper market interest rates, but did not flag immediate action.
Indeed, JPMorgan analysts said there was nothing in ECB
President Mario Draghi's comments that suggested the bank was
"about to launch a major easing offensive."
"The ECB is in wait-and-see mode and is tolerant of a
recovery that is modest and of inflation that is far below
target," they wrote in a client note.
They added that declines in money market interest rates
since the last ECB meeting have in part lessened the momentum
for new measures.
The euro last stood at $1.3581, with the latest push
bringing the currency near its 2013 peak of $1.3711 set on Feb.
1. That, in turn, drove the dollar index to its lowest in
eight months and towards its 2013 trough.
Against the yen, the dollar hovered near a five-week low
around 97.14. The euro lost only a bit of ground to trade
at 132.37 yen after recovering from a low around
Traders said the dollar could make a comeback against
safe-haven currencies such as the yen if a deadlock that has
shut down wide swaths of the U.S. federal government was broken.
President Barack Obama met with Republican and Democratic
leaders in Congress on Wednesday but a solution seemed unlikely
as both sides dug in for what could be a long stalemate.
A notable mover was the New Zealand dollar, which rallied
broadly after the Reserve Bank of New Zealand said larger
increases in interest rates would be needed if new limits on
mortgage lending fail to cool the country's housing market.
The kiwi jumped to a high around $0.8340, pulling
well away from a two-week trough of $0.8194 plumbed on
Wednesday. It last traded at $0.8309.
Asia again has a dearth of economic news on offer for
Thursday, apart from a survey on China's services activity.
The latest reading on the Chinese manufacturing sector was a
bit of a letdown, so any further disappointment will only add to
worries that a nascent recovery in the world's second-biggest
economy may be foundering.