Forex: Thursday’s review

Yesterday the dollar erased losses against the euro after Senate Majority Leader Harry Reid said the U.S. may fall off the so-called fiscal cliff of tax increases and spending cuts that may tip the nation into recession. Reid said a resolution to the U.S. budget dispute before Jan. 1 appears unlikely because Republicans won’t cooperate.

President Barack Obama and U.S. Congress return to Washington to resume negotiations over the fiscal cliff of more than $600 billion in automatic tax increases and spending cuts set to take effect next month. Treasury Secretary Timothy F. Geithner said there’s “significant uncertainty” around tax and spending policies, according to a letter sent to congressional leaders.

The 17-nation euro climbed to an almost eight-month high earlier today after French consumer confidence unexpectedly improved and Italian business sentiment increased.

An index of French household sentiment rose to 86 in December from 84 in November, the first monthly increase since May, the national statistics office Insee said. Economists forecast an unchanged reading of 84. A gauge of Italian business climbed to 88.9 from 88.5, according to Rome-based national statistics institute Istat.

The yen reached a 28-month low against the dollar as John Taylor, founder and chairman of New York-based currency hedge fund FX Concepts LLC, said Japan’s currency may weaken to 90 per dollar for the first time since June 2010. The yen slumped after Prime Minister Shinzo Abe was approved as prime minister yesterday by parliament. His Liberal Democratic party won a landslide victory in lower house elections on Dec. 16, pledging to weaken the currency.