Dollar Gains on Concern Greek Debt Deal Will Stall, Fiscal Cliff

By Allison Bennett and Neal Armstrong

Nov. 27 (Bloomberg) -- The dollar gained from almost a one- month low versus the euro as concern a deal for Greece to buy back its bonds may falter while U.S. lawmakers struggled to reach a budget consensus boosted haven demand.

The Swedish krona declined at least 0.5 percent versus all of its major peers after consumer confidence was weaker than forecast. The greenback extended gains against the majority of its 16 most-traded counterparts after Senate Majority Leader Harry Reid said he is "disappointed" in the lack of progress in discussions to avoid the so-called fiscal cliff. The euro weakened with higher-yielding assets after policy makers released the plan that will allow Greece to receive its next aid payment.

"The amount of debt relief from elements of the program, such as the bond buyback, are questionable," said Aroop Chatterjee, a currency strategist at Barclays Plc in New York.
"No actual money was released either by the European Union or the IMF, and the proposed release next month is also conditional. There is no guarantee that this will happen when Dec. 13 rolls around."

The dollar rose 0.2 percent to $1.2943 per euro at 5 p.m. New York time after dropping to $1.3009, the weakest since Oct. 31. The euro declined 0.1 percent to 106.34 yen after rising as much as 0.5
percent. The Japanese currency was 0.1 percent weaker at 82.15 yen per dollar.

Krona, Peso

The krona fell for the first time in five days against the euro, declining 0.9 percent to 8.6526, after consumer confidence fell for a fourth month in November. The central bank signaled it may cut interest rates next month for a fourth time since December as it predicts the Nordic region's
largest economy will suffer from falling demand from Europe.

Mexico's peso rose as much as 0.4 percent to 12.9597 per dollar after bookings for non-defense capital goods excluding aircraft in the U.S., its biggest export market, rose 1.7 percent last month, the most since May, the Commerce Department reported. The peso erased gains after Reid's comments,
declining 0.2 percent to 13.0403.

Sterling strengthened after a report confirmed Britain's economy exited a double-dip recession in the third quarter. The pound added 0.2 percent to 80.78 pence per euro. The U.K. currency was little changed at $1.6022 after rising to $1.6056, the highest since Nov. 2.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against currencies of six U.S. trading partners, added 0.1 percent to 80.346 after falling as much as
0.3 percent. It rose after consumer confidence in November reached the highest since February 2008, according to the Conference Board's confidence index.

Fiscal Cliff

"We only have a couple weeks to get something done, so we have to get away from the happy talk" and do "specific things," Reid said to reporters today. "We could have prevented this crisis months ago by simply adopting what we passed in the Senate."

Lawmakers are trying to avert a collection of $607 billion in automatic tax increases and spending cuts scheduled to take effect at the beginning of 2013 to prevent a short-term shock to the economy and reach an agreement on long-term deficit reduction.

The U.S. currency will appreciate against all of its Group of 10 counterparts except the Canadian dollar by 2014, as America weathers the fiscal cliff and its economy expands 2 percent, more than the 1.26 percent G-10 average, data compiled by Bloomberg show.

Not 'Enthused'

In the latest bid to keep the 17-nation euro zone intact, policy makers cut the rates on Greece's bailout loans, suspended its interest payments for a decade, gave it more time to repay and engineered a Greek bond buyback. The country was also cleared to receive a 34.4 billion-euro ($44.7 billion) loan installment in December.

"Market participants are not overly enthused by the tentative deal reached between euro-area finance ministers and the International Monetary Fund after several rounds of protracted negotiations to ease Greece's bailout terms,"

Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon, wrote to clients today.

The parliaments of three of the euro area's AAA rated countries -- Germany, Finland and the Netherlands -- insisted on approving the accord, with Dec. 13 set as the deadline for a formal decision to unlock the next Greek aid tranche.

"If things are muddling along in Europe and things are muddling along in the U.S. and we get a deal for the fiscal cliff, focus is going to shift away from here to Japan," said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York.

The euro has risen 2.4 percent in the past three months, still the best performer among 10 developed-market currencies, according to Bloomberg Correlation-Weighted Indexes. The dollar is 1 percent weaker and the yen has fallen 5.8 percent, to lead decliners.