The euro fell and the yen firmed on Friday after a US Republican plan aimed at avoiding a fiscal crunch failed to gain enough support, deepening uncertainty over the chances of a deal by year-end. Republican lawmakers delivered a rebuke to their leader, House of Representatives Speaker John Boehner, when they failed to back an effort designed to extract concessions from President Barack Obama in the "fiscal cliff" talks.
The latest twist threw into disarray attempts to head off $600 billion of indiscriminate tax hikes and spending cuts that could push the US economy into recession next year. The renewed jitters over the fiscal cliff dented risky assets and gave a lift to the safe-haven dollar.
The euro fell 0.3 percent to $1.3210, pulling away from an eight-month high of $1.33085 that it was hit on Wednesday on trading platform EBS. The yen strengthened as traders trimmed some of their bearish bets against the Japanese currency, which has been pressured by market expectations that a new Japanese government would push the Bank of Japan into more forceful monetary easing. A sudden plunge in US stock index futures helped trigger a sell-off in risky assets and yen crosses, said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.
"The whole street has been massively long and in thinner holiday market conditions, it set off a perfect storm of stop- loss selling," Halley said. The yen was put under pressure earlier in the week in the wake of a landslide election victory by Japan's conservative Liberal Democratic Party (LDP), which is committed to aggressive monetary easing.
The euro was down 0.6 percent against the yen at 111.06 yen. The single currency fell to 110.63 yen earlier on Friday, down about two yen from a 16-month peak of 112.59 yen that had been set on Wednesday. The dollar fell 0.4 percent to 84.07 yen, pulling away from a 20-month high of 84.62 yen struck on Wednesday.
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