November 28, 2012 / 2:21 PM / 5 years ago

FOREX-Euro slides as risk appetite fades on Greece, U.S. fiscal woes

* Greek deal provides only brief lift
    * German lawmakers expected to pass deal on Friday
    * Yen regains ground as investors unwind short positions

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Nov 28 (Reuters) - The euro fell broadly on
Wednesday as risk appetite waned on worries about how a deal on
Greek debt will be implemented and persistent concerns about
whether U.S. lawmakers can agree on a deal to prevent potential
tax increases and spending cuts.
    The yen, seen as a safe haven during times of economic
uncertainty, was the main beneficiary of investor flows. It also
gained support from investors paring back aggressive
expectations of monetary easing by the Bank of Japan in coming
months.
    "The market remains cautious on the single currency as
traders do not seem convinced that the agreement yesterday on
Greek aid is all it is proposed to be," said Matthew Lifson,
senior analyst and trader at Cambridge Mercantile Group in
Princeton, New Jersey.
    "There are still major concerns that the Greek government
will not be able to meet the obligations set forth at the latest
finance minister's meeting."
    The euro fell 0.5 percent to $1.2886, as
institutional and Russian investors sold. Traders cited bids at
$1.2870 and $1.2850, which could limit losses in the near term
with some attributing the euro's weakness to talk of dollar
demand for month-end portfolio adjustments.
    The euro also fell to a 2-1/2 month low against the Swiss
franc, another safe haven, at 1.2024. It was last at
1.2035, down slightly on the day.
    The single currency has fallen from a one-month high against
the dollar of $1.3010, struck after international lenders agreed
a plan to cut Greek debt earlier this week, allowing the country
to avoid a chaotic default. 
    But a lack of detail and growing scepticism over how Athens
will implement the reforms needed to reach the new targets made
investors wary of adding euros to their portfolios.
    The deal is still subject to approval from German lawmakers,
which some say could weigh on the euro, although it is widely
expected to be approved on Friday.
    With the Greek deal out of the way, investors focused on the
so-called U.S. 'fiscal cliff,' a combination of automatic tax
increases and spending cuts due to kick in at the beginning of
the year that could tip the world's biggest economy into
recession and depress the global outlook.
    The U.S. Congress pushed toward compromise on Tuesday but
agreement with the administration still appeared elusive. 
    "If (the U.S. talks) go well, the relief on peripheral
assets may have legs, including the euro. If it goes badly, even
France may get questioned by an uncertain market, and we would
expect the euro to suffer," Barclays strategists said in a note.
    Comments by U.S. Senate Majority Leader Harry Reid about the
lack of progress by Democratic and Republican lawmakers also
fanned concerns, and added to demand for the dollar and yen.
    The dollar index was up 0.2 percent at 80.551.
        
    YEN REGAINS GROUND
    The yen rose as investors unwound long dollar and euro
positions built in recent weeks on expectations a fresh election
on Dec. 16 will see a new Prime Minister elected. The new
Japanese leader is widely expected to put pressure on the Bank
of Japan to further ease monetary policy.
    The Japanese currency had lost about 4 percent against the
dollar over the past two weeks as investors started to price in
aggressive monetary policy action after the Japanese election.
    Shinzo Abe, who is likely to emerge as premier, has called
for more aggressive easing, but some investors have begun to
question how much impact he will have on monetary policy.
 
    The dollar fell 0.4 percent to 81.81 yen, retreating
from last week's 7-1/2 month high of 82.84 yen. Market players
cited demand for the dollar at 81.70 yen and said this was
likely to check the Japanese currency's gains.
    "While most traders believe there will be an eventual
agreement on 'fiscal cliff' negotiations, they are hedging their
bets and this will keep pressure on the dollar against the yen
in the near term," said Cambridge's Lifson.   
    The euro also fell against the yen, dropping 0.8 percent on
the day to 105.49 yen, moving away from a seven-month
high of 107.135 yen set on Monday.
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