FOREX-Euro drifts lower vs dollar as US fiscal fears weigh

Thu Dec 20, 2012 10:47pm IST

* Most U.S. data positive, but risk appetite wanes
    * "Fiscal cliff" fears dominate
    * BoJ boosts asset buying by 10 trillion yen

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Dec 20 (Reuters) - The euro edged lower against
the dollar on Thursday in volatile trading as worries over U.S.
budget negotiations outweighed generally positive U.S. economic
data that had earlier boosted the market's appetite for
risk-taking.
    Concerns about U.S. policymakers not being able to reach a
resolution on the "fiscal cliff" dogged the currency market. A
combination of tax hikes and spending cuts could kick in early
next year if U.S. legislators fail to reach a fiscal deal, a
scenario that could push the world's largest economy into
recession.
    A U.S. budget agreement is deemed positive for growth-linked
currencies such as the euro and Australian dollar, but viewed as
negative for the safe-haven dollar.
    The Republicans announced plans to put an alternative tax 
plan to a vote in the House of Representatives this week, 
prompting President Barack Obama to threaten to veto it, thereby
unraveling the progress made over the last week.
.
    "There's obviously the backdrop of U.S. fiscal cliff fears.
(U.S. House of Representatives Speaker John Boehner) has rattled
a lot of people," said Richard Franulovich, senior currency
strategist at Westpac Securities in New York.
    He added that there were also technical considerations at
play in the euro/dollar pair. 
    "The euro has been trying to break above $1.33 two days in a
row. So obviously it's being stymied. There are also sellers at
that $1.33 level and that's repelling euro," Franulovich said. 
    By midday, the euro was down slightly at $1.3224 
after trading higher for most of the session. On Wednesday, the
euro hit an 8-1/2 month high.  
    Still, market players were mostly positioned for a U.S. deal
to be reached on time, with some expecting the euro to go as
high as $1.3500 by early January.
    In recent sessions, signs of progress between Democratic and
Republican lawmakers pushed global stocks to a three-month peak
and saw riskier currencies all post solid gains against the U.S.
dollar.   
    The euro earlier rose as high as $1.3295 after
better-than-expected U.S. third-quarter GDP data on Thursday and
it held gains after the release of more robust economic numbers.
    Investors had bought more euros - a currency that tends to
benefit in times of increased risk appetite - as recovery in the
world's largest economy seemed to be on track. 
     The final estimate for U.S. gross domestic growth in the
third quarter was 3.1 percent, up from the 2.7 percent annual
rate reported last month, while U.S. existing home sales rose
unexpectedly at their fastest pace in three years.  
    In addition, factory activity in the U.S. mid-Atlantic
region accelerated in December, bouncing back from the previous
month's storm-related slump as new orders picked up.
 
    Against the yen, the euro drifted lower to 111.61.
    The Japanese currency had earlier slipped against the dollar
after the scale of asset purchases set by the Bank of Japan
disappointed some investors who had positioned for more
aggressive easing.
    The dollar by midday was flat at 84.36 yen. Any gain
in the yen is expected to be capped by the prospect of further
easing by the BoJ next year.
    The Japanese central bank increased its asset buying by 10
trillion yen and said it would debate next month whether there
is room to raise its inflation target, a move that could weaken
the currency.
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