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Dollar firms after US fiscal cliff deal

Jan 03 2013 07:43 AFP

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New York - The dollar firmed Wednesday after the US Congress struck a last-minute fiscal deal to avoid most of the punishing tax hikes that could have jolted the tepid economy back into recession.

After worries about the year-end "fiscal cliff" in the world's biggest economy dominated markets for weeks, investors cheered the bill passed on Tuesday, with relief equity rallies spanning the globe.

The legislation mainly addresses tax issues but delays crucial federal spending cuts for two months, setting up another round of bruising political battles and stoking uncertainty in the markets.

But unlike the strong global stock market surges on the cliff news, the dollar's gain was limited.

"While equity traders welcomed Washington's fiscal-cliff deal, the price action in the foreign exchange market today suggests that forex traders are growing worried about unfinished business in Washington," said Kathy Lien of BK Asset Management.

"It will be interesting to see whether the optimism of equity traders or the caution of currency traders win out."

The euro fetched $1.3184 around 22:00 GMT, down from $1.3193 at the same time on Monday. The US markets were closed Tuesday for the New Year holiday.

The Japanese currency was under pressure: the euro rose to ¥115.13 from ¥114.44 late on Monday and the dollar climbed to ¥87.32 from ¥86.74.

"Investor caution will ease only temporarily, with the debate on taxes, spending and raising the US debt ceiling set to resurface in a matter of weeks," said Nick Bennenbroek of Wells Fargo Bank.

"For the euro, where the economy remains in recession, we continue to view recent currency strength as a medium-term selling opportunity."

The dollar rose against the Swiss currency, buying 0.9178 francs compared with 0.9154 late on Monday.

It was unchanged against the pound at $1.6253.

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dollar  |  markets  |  us fiscal cliff
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