U.S. Markets closed

FOREX-Dollar pressured by U.S. budget deadlock

* Boehner's uncompromising comments raise U.S. debt default


* Dollar index stuck close to eight-month low

* Safe-haven yen rallies to near two-month high vs dollar

By Wanfeng Zhou

NEW YORK, Oct 7 (Reuters) - The dollar remained near an

eight-month low against a basket of currencies on Monday as a

U.S. budget deadlock in Congress showed no sign of breaking.

Investors flocked to perceived safe havens like the yen and

the Swiss franc, driving the dollar to it weakest since

mid-August against the Japanese currency.

As the U.S. government moved into the second week of a

shutdown and an Oct. 17 deadline to increase the nation's

borrowing limit approaches, neither Republicans nor Democrats

offered any sign of impending agreement on either the shutdown

or the debt ceiling. Both blamed the other side for the impasse.

"The safe havens, the Japanese yen and the Swiss franc,

should stand to benefit above all else if the October 17

deadline creeps forward without any tangible resolution in

sight," said Christopher Vecchio, currency analyst at DailyFX in

New York. "The U.S. dollar should benefit too, especially

against the commodity currencies; though we would expect

dollar/Swiss and dollar/yen to remain under pressure."

The dollar index fell 0.2 percent to 79.95, not far

from an eight-month low of 79.627 hit on Thursday.

Fears have grown that a prolonged stalemate could hurt the

fragile economic recovery and could compel the Federal Reserve

to delay trimming its bond purchases, which are dollar-negative.

"Now that it's entering its second week, investors are

growing a bit more edgy and that's being played out in weaker

world stocks and the dollar staying on the defensive," said Joe

Manimbo, senior market analyst at Western Union Business


The dollar fell to as low as 96.79 yen, its lowest

since Aug. 12, before rebounding slightly to 96.92 yen, down 0.6

percent on the day.

Traders cited support at 96.67 yen, its 200-day simple

moving average. Reported large option expiries at 96.50 yen and

96.75 yen could keep the pair close to its current levels. The

dollar was also just in oversold territory against the dollar

with a 14-day exponential relative strength index reading of


Osamu Takashima, chief FX strategist at Citigroup Global

Market Japan in Tokyo, said there was a risk of the pair falling


"If the dollar falls to around 95 yen, under-hedged Japanese

exporters may try to sell the dollar, further accelerating the

dollar's fall."

The dollar fell 0.4 percent to 0.9032 Swiss franc,

slipping toward Thursday's low of 0.8965, the lowest since late

February, 2012.

The euro rose 0.2 percent to $1.3578, not far from

Thursday's eight-month high of $1.3645. The euro's rise was much

of the reason for the decline in the dollar index.

Some analysts said the dollar's losses have been limited so

far as investors still hope that politicians will find a

last-minute resolution to avert a disastrous debt default.

The last big confrontation over the debt ceiling, in August

2011, ended with an eleventh-hour agreement under pressure from

shaken markets and warnings of an economic catastrophe if a

default were allowed to occur.

A similar last-minute resolution remained a distinct

possibility this time as well.

The currency's status as a safe haven has also been

undermined by expectations that any damage done to the U.S.

economy would be countered by the Fed sticking to its stimulus.

Jane Foley, senior currency strategist at Rabobank in

London, said "there is some opinion in the market that the

dollar's status as a safe haven will eventually win the day."

She said during past debt ceiling negotiations, the dollar had

stayed directionless and managed a relief rally once compromises

had been made.

"Near term, we expect the dollar index to retain a downside

bias based mainly on the perception that the Fed could decide

that delaying tapering (of quantitative easing) is necessary to

protect the economy from any negative fallout from the impasse."