Dollar near 8-month low, fiscal wrangling takes toll

SINGAPORE/TOKYO - The dollar nursed losses near an eight-month low against a basket of currencies on Friday as traders focused on the economic impact of an acrimonious showdown in Washington that dragged the US to the brink of a debt default.

The potential damage to the economy from the weeks-long government shutdown could discourage the Federal Reserve from scaling back its stimulus programme at least until the beginning of next year.

"The markets are driven by expectations that the Fed will have to maintain its stimulus," said Sho Aoyama, senior market analyst at Mizuho Securities.

US Democrats and Republicans reached an 11th-hour agreement on Wednesday to break the fiscal impasse. But the deal only funds the government until Jan. 15 and raises the borrowing limit through to Feb. 7.

The first wave of US data released on Thursday after the government returned to work was fairly upbeat. But the main focus is squarely on the September payrolls report, which the Labor department said will be published on Tuesday.

The dollar index edged up 0.1 per cent to 79.728, after having fallen to as low as 79.613 on Thursday, its lowest level since early February.

For the week, the dollar index is down about 0.8 per cent, on track for its biggest weekly decline since mid-September, when the Fed shocked markets by keeping its bond-buying stimulus unchanged.

The dollar's fall in the wake of the US fiscal deal partially reflected the rise in risk-sensitive currencies as expectations of continued US stimulus helped to boost Wall Street shares, with the S&P 500 index hitting a record high on Thursday.

The euro eased 0.1 per cent to about $1.3663, having set an eight-month high of $1.3682 on Thursday. That was just shy of this year's peak of $1.3711 set in early February.

One point to watch is whether European authorities will express concerns about the euro's latest rise against the dollar given the potential impact on euro zone exports, said a trader for a Japanese bank in Singapore.

"Officials in countries that are concerned about their economies are probably watching with a sense of irritation," the trader said.

Against the yen, the euro inched up 0.1 per cent to 133.97 , not that far from a four-year high of 134.95 yen set a month ago.

The dollar struggled to gain traction against the Japanese currency after a fall in US bond yields undermined the greenback's yield allure.

The dollar edged up 0.1 per cent on the day to 98.04 yen , but remained below a three-week high of 99.01 yen touched on Thursday.

There was limited market reaction to a spate of Chinese indicators, which were broadly in line with market expectations.

Official data showed China's annual economic growth quickened to 7.8 per cent in the third quarter.

The Australian dollar eased 0.1 per cent to $0.9623, hovering near Thursday's four-month high of $0.9647.