October 10, 2013 / 3:34 AM / 4 years ago

FOREX-Dollar bounces back on signs Washington is moving

* Dollar supported as Obama starts meeting lawmakers

* Fed minutes shows most board members still expected tapering to begin this year

* Yellen nomination seen as removing one uncertainty in uncertain world

* Dollar/yen finds strong support at 200-day moving average

* British pound loses steam after weak UK data

By Hideyuki Sano

TOKYO, Oct 10 (Reuters) - The dollar firmed broadly on Thursday on signs Washington is clawing towards breaking a stalemate and averting a possible U.S. debt default late next week.

The dollar index inched up to 80.47, extending its recovery from an eight-month low of 79.627 hit a week ago. The euro was slightly easier at $1.3498 after having fallen 0.35 percent overnight.

“There are hopes that Washington is moving on the deadlock over the government shutdown and debt ceiling. The dollar looks set to gain if these problems are solved,” said Sho Aoyama, senior market analyst at Mizuho Securities.

House Republican leaders will visit the White House on Thursday as the search intensifies for a way to break the impasse.

Some Republicans and Democrats floated the possibility of a short-term increase in the debt limit to allow time for broader negotiations on the budget, even though there was no tangible signs of progress on Wednesday.

Against the yen, the dollar rose 0.4 percent to 97.74, up more than a full yen from a two-month low of 96.55 yen hit on Tuesday.

One trigger for investors’ buying was the dollar’s success staying above a key support from its 200-day moving average in the past few days. The average stood at 96.83 on Thursday.

“Some players were hoping to buy the dollar at around 95 yen. But once you think that the U.S. debt deal will be reached in the end, then the latest dip offers a good opportunity to buy,” said a trader at a Japanese bank.

The U.S. currency received an additional boost after the minutes of the Federal Reserve’s September meeting revealed the decision not to slow stimulus was a “close call” and that most board members supported tapering bond-buying later this year.

Earlier on Wednesday, the dollar also gained on the news that Federal Reserve Vice Chairwoman Janet Yellen will be nominated as head of the U.S. central bank.

Although the news could have been seen as negative for the dollar given that investors regard Yellen as a policy dove, it helped soothe sentiment as the nomination was seen as reducing uncertainty in a market gripped by fear of a U.S. debt default.

U.S. Treasury Secretary Jack Lew has said it will run out of additional borrowing authority on Oct. 17.

Many investors are now looking to his testimony before the Senate Finance Committee later on Thursday on his latest estimate on the Treasury’s funding positions as well as possible contingency plans.

Despite some signs of rapprochement in Washington, the dollar could still be vulnerable to concerns about a debt default.

Short-term U.S. government bill yields were at the highest level since the 2008 financial crisis, reflecting investor anxiety.

Elsewhere, the British pound lost steam following an unexpected fall in British industrial output and a wider-than-expected trade deficit.

The pound shed 0.2 percent to $1.5927. extending its 0.8 percent fall the previous day to a three-week low of $1.5917.

Against the euro, it stood near a five-week low of 84.875 pence per euro, and was last trading at 84.72.

The immediate focus is on the Bank of England’s policy announcement at 1100 GMT, though no policy change is expected.

The Australian dollar lost 0.5 percent against a broadly firm U.S. dollar, unable to maintain its small gains after a mixed bag of Australian employment data. The Aussie was at $0.9406 after its rally following the job data ran into heavy resistance near $0.95.

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