The euro came off a one-month high against the dollar on Thursday after top Republican lawmaker John Boehner dented hopes for a budget deal that could prevent the US economy from slipping back into a possible recession next year. The euro zone common currency had earlier risen above $1.30 on expectations that US politicians would reach an agreement. But it pared gains to trade just slightly higher on the day by late morning.
A day after expressing optimism over a US "fiscal cliff deal," Boehner, speaker of the US House of Representatives, on Thursday said there had been no "substantive" progress made in the last two weeks. "The euro trajectory may be very likely tied to the fiscal cliff going forward. Without a proper resolution, it's hard to see the euro break its current ranges," said Ravi Bharadwaj, pricing and market analyst at Western Union Business Solutions in Washington. Congressional budget analysts have warned that the fiscal cliff's approximately $600 billion in tax hikes and spending cuts that would begin in 2013 would push the US economy back into recession. A deal to avert the cliff would boost the outlook for the economy and lift growth-linked currencies such as the euro and the Australian dollar.
The euro was up 0.2 percent at $1.2973, after earlier hitting a one-month high of $1.3013 on Reuters data as traders also reported month-end demand for euros. A drop in Italy's 10-year borrowing costs at a sale of debt on Thursday and positive euro zone data helped support the currency. The euro also cut gains after Democratic Congressman Chris Van Hollen told MSNBC that lawmakers were not close to a US budget deal, traders said. Van Hollen is the top Democrat on the House Budget Committee. Investors were cautious about pushing the euro higher. Some analysts warned the euro remained vulnerable to economic data and concerns about elements of Greece's aid deal. Greece's ability to fully implement a debt buy-back is a looming issue.
"I think by year-end, the euro can get down to the $1.23-$1.24 area," Newedge's Dowd said. "That assumes that, number one, a fiscal cliff would be averted and that would get the dollar bid, and number two that the situation in Europe would just muddle through." Against the yen, the euro was up 0.2 percent at 106.53 yen. On Monday, the euro hit a seven-month high of 107.13 yen on Monday. US data on Thursday, though slightly below expectations, pointed to an upturn in the economy, feeding risk appetite and helping the euro hold gains against both the dollar and yen.
The dollar edged 0.1 percent higher at 82.09 yen, pulling away from a one-week low of 81.67 set on Wednesday. The US currency hit a 7-1/2-month high of 82.82 yen last Thursday on speculation about possible aggressive monetary easing in Japan following a likely change in government next month.