Forex - Dollar gains as hopes dwindle for end to U.S. budgetary impasse

Shutterstock photo - The dollar rose against most of its peers on Thursday after a key U.S. lawmaker said hopes for a deal to avoid a year-end combo of tax hikes and deep spending cuts, known as a fiscal cliff, may be fading, which sent investors chasing safe-haven greenback positions.

In U.S. trading on Thursday, EUR/USD was up 0.09% at 1.3236.

Fears the U.S. will careen over a fiscal cliff grew after Senate Majority Leader Harry Reid said earlier that Jan. 1 may come and go without a deal to prevent tax breaks from expiring and deep spending cuts from kicking in at the close of 2012.

Meanwhile, President Barack Obama and Congress returned to work on Thursday to discuss ways to avoid the fiscal cliff, though hopes continued to fade a deal may be struck in time.

While taxes won't go up across the board on Jan. 2 and while spending cuts will take time to materialize, safe-haven demand for the U.S. dollar grew on Thursday due to the building uncertainty.

Private-sector economists have warned that fiscal uncertainty alone is prompting households and businesses to throttle back on investing and spending, which could cool the U.S. economy even if a deal is struck early in 2013 and a worst-case recession is avoided.

Data in the U.S. came in mixed to somewhat soft of market expectations.

The U.S. Census Bureau reported earlier that new home sales rose by 4.4% to a seasonally adjusted 377,000 units in November, missing expectations for an increase to 378,000.

New home sales for October were revised down to 361,000 units from a previously reported 368,000.

The news sent investors seeking safety in the U.S. currency as did soft consumer confidence figures.

U.S. consumer confidence slumped to a four-month low, industry data showed on Thursday.

In a report, the Conference Board, a market research group, said its index of consumer confidence fell to 65.1 in December from a reading of 71.5 in November, whose figure was revised down from 73.7.

Analysts had expected the index to decline to 70.0 in December.

The news wasn't totally bearish for risk-on asset classes.

Fewer people sought initial jobless claims in the U.S. than expected last week.

The U.S. Department of Labor said earlier the number of individuals filing for initial jobless benefits in the week ending Dec. 22 fell by 12,000 to a seasonally adjusted 350,000, lower than market calls for a decline of 2,000 to 360,000.

Jobless claims for the preceding week were revised up to 362,000 from a previously reported 361,000,

Continuing jobless claims in the week ended December 15 fell to 3.206 million.

Analysts were expecting that figure to fall to 3.200 million from last week's revised figure of 3.238 million.

The greenback, meanwhile, was up against the pound, with GBP/USD trading down 0.24% at 1.6099.

In the U.K., the British Banker's Association reported that mortgage approvals rose less than expected in November, gaining by 33,600 after a 33,100 increase in October.

Analysts had expected mortgage approvals to rise by 34,600 in November, which sent investors chasing greenback positions in the U.S., where data disappointed as well, fueling risk-off trading sentiments.

The dollar was up against the yen, with USD/JPY trading up 0.53% at 86.09 and flat against the Swiss franc, with USD/CHF trading at 0.9134.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.10% at 0.9954, AUD/USD down 0.05% at 1.0373 and NZD/USD trading up 0.09% at 0.8205.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.01% at 79.73.

On Friday, markets will track pending U.S. home sales and Chicago-area manufacturing data.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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