Credit: Investing.com - The U.S. dollar rose against its European counterpart after investors sought safety in the U.S. currency on growing sentiment U.S. policymakers will fail to avoid the fiscal cliff, a combination of tax hikes and deep spending cuts taking effect with the close of 2012.
The nonpartisan Congressional Budgetary Office has warned failure to avoid the fiscal cliff outright could contract the economy by 0.5%.
In U.S. trading on Monday, EUR/USD was trading down 0.11% at 1.3210, up from a session low of 1.3202, and off from a high of 1.3284.
The pair was likely to find support at 1.3172, Wednesday's low, and resistance at 1.3308, the high from Dec. 19.
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.
Before the Christmas holidays, Republicans in the U.S. House of Representatives canceled plans to vote on a budget proposal tabled by House Speaker John Boehner, himself a Republican, which called for tax hikes on incomes over USD1 million, well above a White House proposal calling for tax hikes on incomes topping USD400,000.
Rebellion in Boehner's own party spooked investors that the U.S. will fail to reach a budgetary deal.
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 Monday 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.
Weak economic data in the U.S. sent investors to the safety of the dollar.
U.S. new home sales rose less than expected in November.
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. 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 euro, meanwhile, was up against the pound and up against the yen, with EUR/GBP trading up 0.33% at 0.8221, and EUR/JPY trading up 0.32% at 113.59.
On Friday, markets will track French growth figures as well as pending U.S. home sales.
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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.
