Dollar, Yen Drop Sharply On Fiscal-Cliff Deal

The dollar and Japanese yen fell sharply as the euro rallied early Wednesday after the House of Representatives passed a bill to undo much of the fiscal cliff threatening the U.S. economy.

After trading at 79.792 late Monday in North America, the ICE dollar index  had fallen to 79.460 by Wednesday afternoon in Asia.

The index, which tracks the dollar against six major rival currencies, moved as low as 79.28, as U.S. lawmakers passed a bipartisan deal undoing much of the fiscal cliff of austerity measures, which began going into effect at the start of the year.

Often considered a safe-haven currency, the dollar frequently rises at times of uncertainty and falls when investors are willing to take more risk.

The vote to undo the fiscal cliff, which economists believed could have thrown the U.S. back into recession, helped spur buying of currencies seen as riskier, such as the euro.

On Wednesday, the euro  was changing hands at $1.3267, up from $1.3197 late Monday.

By contrast, the Japanese yen — considered a safer currency, like the dollar — took an even sharper fall than did the greenback. The dollar  rose to ¥87.17 from Monday’s ¥86.76, sitting at levels not seen since July 2010, according to FactSet data.

“Once some headlines started dripping through that the House Republicans would approve the deal, it was one-way traffic really,” Royal Bank of Canada fixed-income and currency strategist Michael Turner said of the dollar’s drop.

While the dollar index did gain some ground after the vote took place, Turner said that “for now, dollar weakness would be the key story.”

Longer-term, however, he believes the greenback could move back up as other concerns surface, including the debate over raising the U.S. debt limit, as well as financial issues still facing the euro zone.

Among other major currencies Wednesday, the British pound  rose to $1.6320 from $1.6233 late Monday, while the Australian dollar  sold for $1.0467, marking a 0.7% rise from its levels Tuesday, according to FactSet.

Marketwatch