The dollar slipped in early Asia-Pacific trade on Monday as investors looked for signs of progress to break the deadlock that will avert a United States debt default.
White House officials and Republican leaders scrambled to reassure that the United States would avert a debt default, but the two sides did not appear to be moving closer to a deal.
Amid the uncertainty the greenback eased, with the euro hitting a high of $1.4396 from $1.4353 in late New York trade on Friday. S&P 500 stocks futures started 1 percent lower and gold popped up to $1,608.
“In the absence of deficit deal then the pressure is all on the greenback in the short term at least,” said BNZ currency strategist.
“But if they come up with a decent, credible plan for deficit reduction in the long term then that could pave the way for some U.S. dollar strength.”
The dollar was also weaker against the Japanese yen, falling to a near four-month low of 78.13 yen, from 78.52 yen on Friday. It then trimmed its losses and last traded at 78.36. It also dropped to 0.8135 Swiss francs, from 0.8180 on Friday.
The greenback was down 0.27 percent against a basket of currencies at 73.997 .DXY, with losses limited perhaps because markets still assume that sanity will reign in Washington and a debt deal will be done.
The two sides are deadlocked over Republican demands for a short-term debt-limit increase that would force President Barack Obama to request further borrowing authority in early 2012.
The impasse prompted White House Chief of Staff Bill Daley to warn that there would be a “few stressful days” ahead for financial markets, with the deadline to lift the $14.3 trillion U.S. borrowing limit now only nine days away.
House of Representatives Speaker John Boehner, who had walked away from private talks with the White House on long-term deficit reduction on Friday, was reported saying there was a path to cut spending but Republicans would have to accept sacrifices.
Sources who had been on a conference call held by Boehner on Sunday reported him saying he did not think it was possible to negotiate a large spending-cut deal directly with the White House.
He told Republicans he is drafting legislation that reflects the principles of a strict spending-cut bill that failed in the Democratic-controlled Senate last week, the sources said.
For their part, Senate Democrats had come up with their own plan to cut spending by around $2.5 trillion, though it was not clear if this would satisfy Republicans.
Ugly duckling contest
However, the euro zone’s lingering debt issues were seen as brakes on the single currency’s move higher.
The sweeping bailout and policy package agreed by euro zone leaders has helped stem market panic in the short-run. But analysts say the measures are not enough to bring the crisis to a swift resolution.
“Things aren’t too rosy in Europe either and so it’s really a contest to see who’s the ugliest duckling at the party between the euro and the U.S. dollar,” said Biz’s Burrowes.
Resistance for the euro is seen initially at $1.4440.