TOKYO – The dollar eased against the euro in Asia on Tuesday, as concerns over a lack of progress in US debt negotiations outweighed worries over the eurozone’s sovereign problems, dealers said.
The euro inched up to $1.4125 in Tokyo morning trading from $1.4117 in New York late Monday. The European single unit firmed to 111.68 yen from 111.50 yen.
The dollar fetched 79.05 yen, little changed from 79.02 yen.
Prospects remain unclear over the ongoing debate between Democrats and Republicans in Washington over raising the US government’s debt ceiling.
The White House has warned that the debt limit must be raised by August 2 to prevent a default, which economists and business leaders warn would have deeply destabilising consequences for the global economy.
But Republicans, whose votes Obama needs to raise the congressionally set limit, have demanded sweeping spending cuts in return while rejecting calls from the White House and Democrats to tie them to tax hikes on the rich and corporations.
Rating agencies S&P and Moody’s last week threatened a possibility of lowering their US debt ratings amid the political standoff.
Meanwhile, concern over the eurozone debt crisis continued to undermine investor sentiment, sending bond markets in peripheral nations lower and beating global stock markets overnight.
The persistent uncertainty also saw the yield, or rate of return, paid on Italian and Spanish bonds hit euro-era records, reflecting widespread concern that both countries were now at higher risk and could suffer contagion from the debt crisis.
Italy’s 10-year bond yields rose to 6.0 percent Monday, compared to 5.75 percent on Friday, while Spain’s rose from 6.05 percent to 6.30 percent.
“While the US debt dispute dragged on the dollar, concerns linger over the eurozone debt crisis even after the stress tests were conducted on Europe’s banking system,” said Gen Kawabe, dealer at Chuo Mitsui Trust and Banking.
“With sell factors for both the dollar and the euro, the market is closely watching the upcoming European summit meeting and developments for the US debt negotiations,” Kawabe said.
Leaders of the eurozone countries are holding an emergency summit Thursday aimed at averting a default by Greece and preventing the debt contagion from spreading to larger economies such as Italy and Spain.
The yen showed little reaction after Japanese Finance Minister Yoshihiko Noda said Tuesday recent movement in the currency market has been “one-sided”.
“The caution over Japan’s potential intervention doesn’t seem strong in the market” as market participants are shifting their focus to the Greece debt woes, Daisuke Karakama, market economist at Mizuho Corporate Bank, told Dow Jones Newswires.