The Dollar Index touched a two-week high as President Barack Obama and U.S. lawmakers seek to avert the so-called fiscal cliff of more than $600 billion of tax increases and spending cuts.
The 17-nation euro fell against most of its 16 major counterparts after Italian borrowing costs increased at a debt sale and a report showed the French economy grew less than initially estimated. The yen weakened to a 28-month low versus the dollar after Japanese consumer prices and factory output declined.
“As far as the fiscal cliff goes, expectations are that a deal isn’t going to be reached by the end of the year, so that’s weighing on risk,” Eric Viloria, senior currency strategist for Gain Capital Group LLC, said in a telephone interview. “What that means for the dollar is risk-off, Treasury yields lower and dollar strength.”
The dollar strengthened 0.2 percent to $1.3216 per euro at 5:02 p.m. New York time, after rising as much as 0.5 percent, the biggest gain since Dec. 21. The U.S. currency lost 0.2 percent to 85.96 yen, after reaching the strongest level since Aug. 3, 2010. The euro dropped 0.3 percent to 113.61 yen.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, added 0.1 percent to 79.681 after rising to the highest since Dec. 14.
The index will rise to 80.6 in the first quarter of 2013, according to the median estimate of economists surveyed by Bloomberg. The euro will decline to 1.28 against the dollar in that span, while the yen will rally to 83, the forecasts show.
Futures traders increased bets that the British pound will gain against the dollar to the most since February 2011, figures from the Commodity Futures Trading Commission show. So-called net longs were 37,321 on Dec. 25, compared with 28,036 a week earlier.
The pound gained 0.4 percent to $1.6169.
Net-short positions in the euro, or a bet that the currency will drop against the dollar, totaled 2,549, from 9,736 a week earlier. Short positions on the yen also decreased, falling to 85,608 from 89,163.
South Africa’s rand has rallied the most against the greenback of the currency’s major peers in December, advancing 5.1 percent. Brazil’s real has gained 4.3 percent, while the yen has lost 4.1 percent.
This year, the South Korean won has returned 7.7 percent to the dollar, while Japan’s currency has slipped 10.5 percent.
Obama held talks today with House Speaker John Boehner and Senate Minority Leader Mitch McConnell, as well as Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, both Democrats.
Fiscal cliff “is the only story out there other than dollar yen, which is trading on its own dynamic,” Greg Anderson, the North American head of G-10 currency strategy at Citigroup Inc. in New York, said in a telephone interview. “If the fiscal cliff doesn’t get averted when foreign-exchange markets are back to full liquidity, let’s say Thursday, Jan. 3, yeah, I expect the dollar to rally at that juncture.”
The dollar has appreciated 0.1 percent in the past week among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen slid 2 percent and the euro rose 0.4 percent.
The euro dropped after Italy sold 5.9 billion euros of bonds. The Rome-based Treasury auctioned 3 billion euros of 10-year debt at 4.48 percent, up from 4.45 percent at the previous sale on Nov. 29. It also sold 2.9 billion euros of bonds due in 2017 to yield 3.26 percent compared with 3.23 percent Nov. 29.
French gross domestic product rose 0.1 percent in the third quarter, half the pace estimated on Nov. 15, statistics institute Insee in Paris said. Data yesterday showed jobless claims rose for a 19th month in November.
The yen weakened earlier today as economic reports fueled speculation the central bank will heed government calls to step up stimulus to end deflation.
Japan’s consumer prices excluding fresh food fell 0.1 percent in November from a year earlier, matching economists’ estimates in a Bloomberg News survey. The Bank of Japan’s inflation target is 1 percent, and Prime Minister Shinzo Abe has said he may change the law governing the central bank if it doesn’t double its price goal.
The yen’s decline may be disrupted for about a month by the fiscal cliff in the U.S. as investors seek a haven in the yen as a reserve currency, John Taylor, founder and chairman of New York-based currency hedge fund FX Concepts LLC, said in an interview with Sara Eisen and Josh Barro on Bloomberg Television’s “Surveillance.”
“I’m now worried,” Taylor said. “I can’t believe these guys.”