Dollar hit in Asia by US debt fears

PHOTO: Dollar hit in Asia by US debt fears

TOKYO - The dollar fell in Asia on Friday as investors ran for the euro and yen on growing fears the US government shutdown could lead to a catastrophic debt default.

The greenback bought 97.22 yen (S$1.25) in Tokyo midday trade, from 97.27 yen in New York, where it at one point slipped below the 97-yen mark. The Bank of Japan's announcement that it would hold off fresh easing measures saw it briefly touch 97.17 yen.

The euro was trading near nine-month highs at $1.3623 from $1.3618, following upbeat eurozone data, although the single currency weakened to 132.34 yen from 132.49 yen.

"Until this US political show ends the (dollar-yen) pair will likely trend lower," said a senior dealer at a Japanese bank.

Also weighing on dollar sentiment were data showing the US services sector, the bulk of the economy, slowed sharply in September after two months of acceleration, offsetting better-than-expected jobless claims figures.

But the bank dealer said the dollar's losses were tempered by end-of-week buying by Japanese importers, as well as hopes for a compromise in Washington that reopens the US government.

With Republicans and Democrats unable to find agreement on the budget there are fears the row could continue up to a mid-October deadline to raise the country's borrowing limit before the government runs out of cash.

If the two sides do not increase the debt ceiling Washington will not be able to service its debts and will default, which economists warn will spark global economic devastation.

However, the stand-off has also thrown into doubt a timeline for the US Federal Reserve to cut back its monetary easing drive, putting further pressure on the greenback.

"The chances of the US starting (to wind down its stimulus) this year continue to dwindle," National Australia Bank (NAB) said.

"There are only two more (Fed policy) meetings this year, and with October 30 now improbable, a lot would have to go right in the US economy over the next two months for the Fed to start tapering (at its following meeting on) December 18."