Forex - Dollar dips on cautious hopes for U.S. budget deal

Investing.com - Hopes the White House and congressional Republicans are coming closer to steering the U.S. economy away from a fiscal cliff sent the greenback inching up against the world's major currencies on Monday albeit in cautious and often choppy trading
 
In U.S. trading on Friday, EUR/USD was down 0.03% at 1.3157.
 
At the end of this year, the Bush-era tax breaks and other benefits are set to expire at the same time cuts to government spending are due to kick in, a combination known as a fiscal cliff that could contract the economy by 0.5% next year if Congress fails to avoid it, according to Congressional Budget Office estimates.
 
Lawmakers and the White House have been conducting talks behind closed doors to agree on a fiscal framework for next year to avoid the cliff, with taxes serving as sticking points up to now.
 
Uncertainty surrounding the cliff has kept many investors parked in the dollar, as even if a deal is struck and recession avoided, investors have been worried that tax uncertainty may be prompting businesses to hold off on investing and expanding, dampening the economy in the process.
 
Democrats, meanwhile, want tax breaks to expire on those earning USD250,000 a year, far below a reported Republican offer at a minimum USD1 million a year.
 
However, talk that Republicans continue to cool their opposition to tax hikes on the wealthy in the interest of striking a deal to avoid the cliff sent risk-on assets rising, which allowed the dollar to soften on Monday.
 
The dollar did see support on news that Liberal Democratic leader Shinzo Abe, who is set to become the country's next prime minister, will make good on calls for the Bank of Japan to ramp up monetary easing programs to weaken the yen and jolt the economy.
 
The Liberal Democratic party and coalition partners took a two-thirds majority in Sunday’s elections, which pretty much gives Abe the green light to loosen monetary policy.

Markets took in strike data revealing that New York business activity came in weaker than expected.
 
The Empire State business conditions index dropped to -8.1 in December from a reading of -5.2 the previous month, missing market calls for a -1.0 reading.
 
Meanwhile in Europe, European Central Bank President Mario Draghi told the European Parliament’s Committee on Economic and Monetary Affairs that the eurozone economy will continue to face challenges for some time to come, which weakened the single currency against the greenback.
 
The greenback, meanwhile, was down against the pound, with GBP/USD trading up 0.19% at 1.6202.
 
The dollar was up against the yen, with USD/JPY trading up 0.37% at 83.84 and up against the Swiss franc, with USD/CHF trading up 0.02% at 0.9181.
 
The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.20% at 0.9838, AUD/USD down 0.19% at 1.0547 and NZD/USD trading down 0.25% at 0.8442.
 
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.03% at 79.63.
 
Later Tuesday, the U.S. will release government data on the current account, a broad indicator of economic health.