Dollar Falls as House Sets Deficit Session, Damping Haven

Yen Touches 16-Month Low Versus Euro Before Japan Inflation Data
The Japanese currency touched 113.48 per euro, the weakest since Aug. 4, 2011, before trading at 113.37 as of 9:12 a.m. Photographer: Akio Kon/Bloomberg

The dollar fell to an almost eight-month low against the euro as the Republican-controlled House of Representatives planned a Dec. 30 session as part of efforts to avert the so-called fiscal cliff.

The U.S. currency erased losses earlier today after Senate Majority Leader Harry Reid said policy makers didn’t have time to resolve the deficit-reduction stalemate that threatens the nation with recession, fueling haven demand. The 17-nation euro climbed after French consumer confidence unexpectedly improved and Italian business sentiment increased. The yen reached a 28-month low against the dollar as John Taylor, founder and chairman of New York-based currency hedge fund FX Concepts LLC, said Japan’s currency may weaken to 90 per dollar for the first time since June 2010.

“The U.S. dollar is responding to headlines regarding the fiscal cliff,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York, said by e-mail. “The buck is currently reversing earlier gains after reports that the U.S. House is planning an evening session on Dec. 30.”

The dollar fell 0.1 percent to $1.3236 per euro at 5:05 p.m. New York time, after weakening as much as 0.5 percent. It reached $1.3308 on Dec. 19, the least since April 3. The yen dropped 0.6 percent to 86.10 per dollar, touching the weakest level since Aug. 16, 2010. Japan’s currency declined 0.7 percent to 113.99 per euro.

Winners, Losers

South Africa’s rand has gained 5.1 percent this month against the U.S. currency, the biggest increase of the greenback’s major peers. The yen has declined 4.2 percent.

This year, the South Korean won has advanced 7.5 percent as the yen has fallen 10.7 percent.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, was little changed at 79.625, after falling as much as 0.3 percent.

“I would attribute it to the fiscal cliff, but also lackluster year-end trading,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said in a telephone interview.

The House will convene the evening of Dec. 30 as lawmakers seek to resolve a budget impasse, Majority Leader Eric Cantor said today in a message posted on Twitter. The House may meet through Jan. 2, Cantor of Virginia said. The first votes on Dec. 30 are planned at about 6:30 p.m., Cantor said.

Budget Talks

President Barack Obama and U.S. Congress return to Washington to resume negotiations over the fiscal cliff of more than $600 billion in automatic tax increases and spending cuts set to take effect next month. Treasury Secretary Timothy F. Geithner said there’s “significant uncertainty” around tax and spending policies, according to a letter sent to congressional leaders yesterday.

The yen slumped after Prime Minister Shinzo Abe was approved as prime minister yesterday by parliament. His Liberal Democratic party won a landslide victory in lower house elections on Dec. 16, pledging to weaken the currency.

Japan’s consumer prices excluding fresh food fell 0.1 percent in November from a year earlier, according to a Bloomberg News survey before tomorrow’s report. The Bank of Japan’s inflation target is 1 percent.

Yen depreciation to “86.5 would be about as high as we’d go in this cycle,” Greg Anderson, the North American head of G-10 currency strategy at Citigroup Inc. in New York, said in a television interview on Bloomberg Surveillance with Sara Eisen and Alix Steel. “We’ve had risk-on and we’ve hard risk-off days due to the fiscal cliff over the last month, and it hasn’t seemed to matter. The yen weakens every day.”

Extreme Move

The yen’s 14-day relative strength index dropped to 18.8 against the dollar today and dropped to 19.8 versus the euro. A reading below 30 indicates an asset’s decline has been too rapid it is poised to rise.

An index of French household sentiment rose to 86 in December from 84 in November, the first monthly increase since May, the national statistics office Insee said. Economists forecast an unchanged reading of 84, according to a Bloomberg survey. A gauge of Italian business climbed to 88.9 from 88.5, according to Rome-based national statistics institute Istat.

The euro’s 14-day index of relative strength reached 70.6 to the dollar. A level of more than than 70 signals its rally may have been too far, too fast.

The euro has appreciated 3 percent in the past three months, the second best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes after the Swiss franc. The yen tumbled 10.7 percent and the dollar fell 0.3 percent.

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