Forex - Dollar strengthens in Asia as U.S. House passes budget pact

Investing.com - The dollar strengthened in Asia on Friday with the passage of a key leg of the U.S. federal budget that heightened sentiment the Federal Reserve will now have room to taper its USD85 billion bond-buying program next week.

The U.S. House approved Thursday the two-year budget  agreement drafted by House Budget Committee Chairman Paul Ryan and Senate Budget Committee Chairman Patty Murray and Senate Majority Leader Harry Reid indicated at a Thursday briefing that he expects the Senate to approve the package next week.

The Ryan-Murray budget agreement sets overall discretionary spending for the current fiscal year at $1.012 trillion - about halfway between the Senate budget level of $1.058 trillion and the House budget level of $967 billion, and will come into effect after a current stop-gap bill ends on Jan. 15.

USD/JPY traded at 103.65, up 0.26%, in Asia trade and AUD/USD traded at 0.8928, down 0.12%. The Australian dollar also weakened from overnight comments by Reserve Bank of Australia Governor Glenn Stevens that the currency should be closer to 85 against the dollar.

"I don't think the extent of our knowledge about what's correct is that good, but I did think 95 was rather too high. I thought  85 would be closer to the mark than 95 at the time we started to make some  comments some months ago, but, really, I don't think we can be that precise." 

Overnight, the dollar gained after U.S. retail sales rose 0.7% in November, beating market expectations for a 0.6% increase. Core retail sales, which are stripped of automobiles, rose 0.4%, well above forecasts for a 0.2% increase.

The data kept expectations strong may start a taper of the bond-buying program at its Dec. 17-18 policy meeting if not in early 2014.

Elsewhere, the U.S. Department of Labor said the number of individuals filing for initial jobless claims assistance last week rose to a two-month high of 368,000, far surpassing expectations for an increase to 320,000 from the previous week’s revised total of 300,000.

Markets shrugged off the news, attributing the increase to holiday volatility typical this time of year, while a budget deal underway in the U.S. Congress also sent the dollar rising amid sentiments that fiscal uncertainties may fade and further convince the Fed the economy is in less need of monetary support.

Meanwhile in Europe, industrial production in the euro area fell by 1.1% in October and rose just 0.2% from a year earlier.

Economists were forecasting a monthly increase of 0.3% and an annual gain of 1.1%, and the disappointing readings gave investors reason to sell the euro for dollars on Thursday.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.02% at 80.19.

On Friday, the U.S. is to round up the week with data on producer price inflation.