Forex-political Turmoil Hits Euro, Dollar; Yen, Franc Benefit

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FOREX-Dollar little changed as hopes for U.S. budget deal rise slightly

The euro was down 0.7 percent at 131.82 yen having earlier fallen to a three-week low of 131.385 yen. The single currency fell 0.2 percent versus the franc at 1.2225, off a low of 1.2215 francs, its weakest since early May. It was down 0.3 percent at $1.3488. The euro was weighed down by an increasingly volatile Italian political crisis after Silvio Berlusconi pulled his ministers out of the government on Saturday and called for new elections, just seven months after the last vote.

Separately, industry data revealed that the Chicago purchasing managers’ index hit 55.7 in September from 53.0 in August, beating analysts’ calls for a 54.0 reading The data rekindled market expectations for the Federal Reserve to begin tapering its USD85 billion monthly bond-buying program this year, possibly later this month. Fed asset purchases weaken the dollar by driving down interest rates to spur recovery, and talk of their dismantling continue can bolster the greenback. Elsewhere, the euro found support on reports that Italy’s Silvio Berlusconi was battling dissent within his own political party after he announced Saturday that he was pulling his ministers out of Prime Minister Enrico Letta’s coalition government and called for fresh elections. Prime Minister Letta is going before parliament for a vote of confidence on Wednesday and will need to secure a majority to remain on in government. Separately, data released on earlier showed that the euro zone’s consumer price index rose at the slowest pace since February 2010 in September, sliding to 1.1% from 1.3% in August, which capped the euro’s advance against the greenback. Analysts were expecting a 1.3% reading.

Midwest picking up pace in September also helped underpin the dollar. The Institute for Supply Management-Chicago business barometer rose to 55.7 from 53.0 in August. Economists in a Reuters poll had expected a reading of 54.0. A reading above 50 indicates expansion in the regional economy.


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