FOREX-Yen rallies as investors seek safe haven from U.S. debt worries

Reuters

WELLINGTON, Oct 14 (Reuters) - The dollar fell on Mondaywhile the yen rallied across the board, boosted by safe-havendemand due to concerns the United States may default on itsdebts as lawmakers negotiate a deal to raise its borrowingfacility ahead of a deadline this week.

The dollar fell to around 98.10 yen early in theAsia-Pacific session, easing from around 98.55 yen in lateFriday trade. It retreated from a near two-week high around98.60 yen hit late last week.

U.S. Democrats and Republican leaders met during the weekendto discuss ways to end a partial government shutdown andincrease the nation's borrowing authority, although theyremained at odds over how to achieve this.

Failure to break the stalemate before Thursday, the deadlineto raise the debt ceiling, would leave the world's biggesteconomy unable to pay its bills in the coming weeks, raisingserious concerns about fiscal stability and potentially having acatastrophic impact on financial markets.

The yen, whose vast liquidity makes it a relatively safeoption during times of uncertainty, also rallied against theeuro, which stumbled to around 132.90 yen, whilegaining against sterling and the higher-yieldingAustralian and New Zealand dollars .

"The markets went home on Friday expecting a deal would beimminent. While there's a heap of conciliatory language around,there's no deal yet," said Sam Tuck, currency strategist at ANZBank in Auckland.

"Now that we're in the week where the debt ceiling will behit, the yen's gaining on safe-haven bids."

Concerns that Washington is heading towards a fiscal cliffalso stung the dollar against the euro which rose toaround $1.3560 from around $1.3540 late last week, whilesterling climbed to $1.5980 from around $1.5945.

Risk aversion escalated as discussions come down to the wireahead of the Thursday deadline. This pummelled higher-yieldingcurrencies including the Australian dollar, which fellhalf a U.S. cent to $0.9420, and the New Zealand dollar, which eased to $0.8288 from around $0.8320.

As the deadline approaches, analysts expect the dollar willremain under pressure while the yen and other safe-havencurrencies including the Swiss franc will be attractive.

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