SINGAPORE: The euro eased versus the dollar on Thursday, but its losses were limited after comments from US policymakers rekindled hopes for a deal to avoid a sharp fiscal tightening that could hurt the global economy.
"For the moment, the US fiscal cliff seems to be a dominant theme in the market," said Katsunori Kitakura, associate general manager of market-making at Sumitomo Mitsui Trust Bank.
US House Speaker John Boehner, the top Republican in Congress, voiced optimism that Republicans could broker a deal with the White House to avert a fiscal crisis, even though he repeated his opposition to raising income tax rates on high earners.
President Barack Obama said on Wednesday he hoped to reach an agreement with Congress before Christmas.
Investors fear the planned tax increases and spending cuts due to start at the beginning of next year totalling about $600 billion could tip the world's biggest economy into recession and depress the global economic outlook.
The euro eased 0.1 percent from late US trade on Wednesday to $1.2947, but still held well above Wednesday's intraday low of $1.2880, supported by an improvement in investors' risk appetite.
A drop in the 10-year Italian government bond yield to its lowest level since February 2011 on Wednesday was another supportive factor for the euro, as it suggests that investor jitters over the euro zone's sovereign debt crisis are diminishing.
The single currency faces resistance from the daily Ichimoku cloud top around $1.2994 but a break there could open the way for the euro to test a four-week high of $1.3010 hit on Tuesday after Greece's international lenders agreed to unblock aid funds to Athens.
Market players, however, remain concerned about some elements of the latest aid deal for Greece, agreed to by euro zone finance ministers and the International Monetary Fund earlier this week, with Greece's ability to fully implement a debt buy-back a looming issue.
Against the yen, the euro held steady at 106.34 yen , not too far from a seven-month high of 107.135 yen hit on Monday.
The dollar edged up 0.1 percent to about 82.15 yen, inching away from a one-week low of 81.68 yen hit on Wednesday.
The greenback has seen a corrective pull-back since hitting a 7-1/2 month high of 82.84 yen last Thursday.
"I can feel a bit of long dollar/yen fatigue setting in," said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.
There were some dollar offers near 82.50 yen, while dollar bids were lurking in the 81.60 yen to 81.80 yen area, he said.
The yen has come under pressure recently due to market speculation about the chances of aggressive monetary easing in Japan following a likely change in government next month.
Main opposition leader Shinzo Abe, a front-runner to become prime minister after the Dec. 16 election, has called for radical change in monetary policy, including unlimited easing, sparking a four-percent fall in the yen earlier this month.
The dollar is likely to trade in a 81.00 yen to 83.00 yen range ahead of Japan's election, said a trader for a Japanese bank in Singapore.
"Dollar/yen continuing to see some short-term players building on longs," the trader said, adding that most market players he had contact with were expecting that sort of range for now.