* Monti's surprise offer to quit raises uncertainty over
* Euro weighed by bleak German economic outlook, ECB rate
* Strong US job data supports dollar
* Dollar/yen may have downside after failed chart break
* Canadian dollar hits 7-week high on data, foreign takeover
By Hideyuki Sano
TOKYO, Dec 10 The euro flirted with two-week
lows against the dollar on Monday after Italian Prime Minister
Mario Monti offered to resign, raising political uncertainty
over who will lead the euro zone's third-biggest economy.
The single currency was also undermined by the prospect of a
recession in Germany and expectations of a future rate cut by
the European Central Bank.
"If Monti's pro-euro stance is to back off, that should
raise concerns about the euro," said Junya Tanase, chief
currency strategist at JPMorgan Chase in Tokyo.
The euro fell as much as about 0.3 percent to $1.2880
near a two-week trough of $1.2876 set Friday. It last stood at
$1.2908, down about 0.2 percent from late U.S. levels,
with focus now on the Italian bond market reaction to the news.
Against the British pound, the euro also hit a three-week
low of 79.865 pence.
Monti's surprise announcement at the weekend came a few days
after former prime minister Silvio Berlusconi abruptly withdrew
support for Monti's technocrat government, formed over a year
ago in an effort to restore Italy's credibility with investors.
An election is expected to be brought forward to February,
where, at the moment, the pro-European centre-left Democratic
Party is seen as having a strong advantage over an anti-Monti
front from Berlusconi and a new anti-establishment party, which
comes second in polls.
The euro also came under pressure after Germany's central
bank on Friday warned the euro zone's biggest economy could soon
Comments from a European Central Bank policymaker on Friday
that an interest rate cut was possible next year if the euro
zone economy does not pick up also weighed on the common
The bleak view contrasted with strong U.S. job data
published on Friday, which showed hiring by U.S. firms rose to
146,000 in November from 138,000 in October, defying predictions
about a blow from superstorm Sandy.
The unemployment rate also fell to a near four-year low of
The U.S. dollar index rose 0.2 percent to 80.45, near
two-week high of 80.658 hit just after the release of the
payroll data on Friday.
Still, a big drop in U.S. consumer confidence took some
shine off the dollar, and the dollar's upside is also capped in
the lead-up to this week's Federal Reserve policy meeting.
Many economists think the Fed will announce on Wednesday
monthly bond purchases of $45 billion, signalling it will
continue to pump money into the U.S. economy during 2013 in a
bid to bring down unemployment.
"Despite a drop in the unemployment rate, we expect the Fed
to convert the expiring Operation Twist programme into an
outright purchase programme, with a purchase distribution
similar to the current program," Barclays Capital analysts wrote
in a note.
Also not helping the dollar, there are few signs that
Washington policymakers are moving closer to prevent automatic
tax hikes and spending cuts set to take hold next year, which
analysts have warned could see the U.S. economy swing back into
President Barack Obama met with Republican Speaker of the
House of Representatives John Boehner on Sunday to discuss ways
to avoid the 'fiscal cliff', but a resolution remained elusive.
Against the yen, the dollar was steady at 82.48 yen
but its failure on Friday to break above last month's high of
82.84 yen after the strong job data could suggest the U.S.
currency is susceptible to a fall in the near term, some
"The dollar did not rise despite rise in dollar bond yields.
With yen short positions already at a high level, the dollar
could fall quite fast," said JPMorgan's Tanase.
U.S. regulator data showed speculators' net yen short
positions rose to its highest level since mid-2007.
The Canadian dollar hit a seven-week high against the U.S
dollar, which fell to as low as C$0.9865, as the
Canadian unit extended its gains following strong Canadian job
data and the government's approval of takeover of energy company
Nexen by China's oil giant CNOOC.