* Dollar pulls back from 2-month low versus yen
* U.S. budget impasse continues, but signs of hope emerge
* Still seen under pressure until a U.S. deal is reached
By Jessica Mortimer
LONDON, Oct 8 The dollar edged higher on
Tuesday, pulling away from a two-month low against the yen as
signs emerged that U.S. lawmakers could come to an agreement to
avoid a default.
However, analysts said the U.S. currency would remain under
broad selling pressure while a U.S. budget standoff continued
and kept alive the possibility that Republicans and Democrats
may not agree on the debt ceiling before an Oct. 17 deadline.
The dollar was up 0.4 percent at 97.05 yen, having
dropped to 96.55 yen in Asian trade, its lowest since Aug. 12.
It then recovered to trade back above chart support at 96.73
yen, its 200-day moving average.
"There are a few signs of willingness from the White House
and Congress to open up to more constructive discussions, which
supports the view that some kind of deal will be reached and has
calmed investors' fears," said Niels Christensen, currency
strategist at Nordea.
But he added: "The risk is to the downside for the dollar as
long as we don't have an agreement ... There may be some more
euro buying if it goes above last week's high."
On Monday, President Barack Obama said he would accept a
short-term increase in the nation's borrowing authority to avoid
default. An influential senator was also said to be floating a
plan to cut federal spending and reform the U.S. tax code as
part of a broader deal.
The euro was down 0.05 percent at $1.3574, pulling
away from an eight-month high of $1.3645 touched on Thursday. It
showed little reaction to data which showed German industry
orders unexpectedly fell in August although the trend was still
The dollar index, which measures the U.S. currency's
value against a basket of currencies, was up slightly at 79.968.
Last week it hit an eight-month low of 79.627.
"People are wary of being caught out. The vast majority in
the market think the U.S. will reach a deal at the eleventh hour
... There is an underlying desire to be optimistic," said Kit
Juckes, currency strategist
China and Japan, the United States' biggest creditors, are
increasingly worried the U.S. government shutdown and standoff
over the debt ceiling could wreak havoc on their trillions of
dollars of investments in U.S. Treasury bonds.
The impasse has distracted investors from what had
previously been their main preoccupation: the timing of the U.S.
Federal Reserve's reduction of its stimulus, which should lift
The higher-yielding and riskier Australian dollar
was up 0.5 percent at $0.9474, helped by upbeat surveys on
Australian employment and market sentiment.