FOREX-Euro edges up on U.S. dollar, whipsawed by 'fiscal cliff'

Fri Dec 21, 2012 1:25am IST

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

    NEW YORK, Dec 20 (Reuters) - Currencies held to tight ranges
in thin pre-holiday trade on Thursday, with the euro see-sawing
against the U.S. dollar while investors struggle to gauge
developments on U.S. budget talks against a backdrop of
generally positive U.S. economic data.
    Concerns about U.S. policymakers not being able to reach a
resolution on the so-called fiscal cliff of government spending
cuts and tax rises in January dogged the currency market.
    President Barack Obama has said he is near the limit on what
he can offer to resolve the disagreement while the leader of the
opposition, Republican John Boehner, said he will continue to
work on a plan. Talks soured earlier this week after progress
was made on taxing and spending cuts. The combination could push
the world's largest economy into recession.
    "I think the market is having trouble trading the fiscal
cliff given the mixture of headlines and uncertainty over any
plan," said Win Thin, a currency strategist at Brown Brothers
Harriman in New York. "You would think this is dollar positive.
Euro still holding up above $1.32, and looks more like a
technical bounce."
    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 Democrat Obama to threaten to veto it, thereby
unraveling the progress made over the last week.
.
    In afternoon New York trade, the euro recouped midday losses
to gain 0.08 percent, trading at $1.3236. On Wednesday,
the euro hit an 8-1/2 month high of $1.3308.  
    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 had been as high as $1.3295, earlier on
Thursday. Investors responded to better-than-expected U.S.
third-quarter GDP data 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.
 
    The euro edged up 0.07 percent to 111.70 yen.
    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 slipped 0.02 percent to 83.38 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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