Dollar drops against yen on US vote delay

TOKYO: The dollar dropped against the yen in Asia on Friday after the US House delayed a vote on a plan to avert a potentially catastrophic US debt default, raising downgrade fears.

Meanwhile, the euro fell further against the dollar as concern intensified over the eurozone debt crisis after rating agency Moody's said it was planning to downgrade Spanish debt.

After falling to a fresh four month low of 77.44 yen, the dollar stood at 77.53 yen in Tokyo afternoon trade, against 77.74 yen in New York late Thursday.

The European common currency was down to $1.4295 from $1.4324. The euro sagged to 110.84 yen from 111.28 yen.

The market remained focused on US lawmakers' negotiations for raising the country's $14.3 trillion debt ceiling, as the clock ticked down to a August 2 deadline for averting a devastating default.

President Barack Obama's Democrats and the opposition Republicans remained at loggerheads on Thursday over deficit-reduction plans in Congress tied to raising the debt limit.

The Republican-led House of Representatives planned to vote on a debt-reduction plan that the Democrat-led Senate was almost certain to reject.

But US House Speaker John Boehner was forced to delay until Friday a vote on the proposal, as he struggled to wrangle support for the measure from within his restive Republican caucus.

Boehner faced stiffer than expected resistance from unruly conservative Tea Party lawmakers to pass the measure and Republicans were expected to wait a day to try again to hold a vote on it.

"I'd say 90% or more of people in the market have priced in expectations for the US to avoid a default, but with this now down to the wire, there's a real threat of sovereign downgrades regardless of the outcome," Mitsuru Sahara, a senior FX dealer at Bank of Tokyo-Mitsubishi UFJ, told Dow Jones Newswires.

Japanese Finance Minister Yoshihiko Noda reiterated Friday that the yen's recent gains "are not in line with the economy's fundamentals."

As the euro stayed under pressure on recurring worries about eurozone debt problems, sovereign bond yields on Italy and Spain climbed overnight.

Selling hit the euro after ratings agency Moody's said Friday that it was planning to downgrade Spanish debt, currently at "Aa2", due to the country's budget problems.

Moody's said the pressure on Madrid could be exacerbated by fears over the new European deal to rescue Greece, which had "created a precedent" by involving the private sector and signalled a growing risk for investors holding bonds in the fragile countries of the eurozone.

"In addition to the debt crisis in the eurozone, a possible US credit downgrading is also worrisome," said Teppei Ino, analyst at the Bank of Tokyo-Mitsubishi UFJ.

"It would deliver an additional damper for European banks as they may be forced to reduce risky assets overall."

The dollar was higher against other Asian currencies, rising to Sg$1.2054 from Sg$1.2028 on Thursday, to 1,054.07 South Korean won from 1,052.45 and to Tw$28.83 from Tw$28.80.

The unit also gained to 8,508.75 Indonesian rupiah from 8,503.75, to 42.25 Philippine pesos from 42.21 and to 29.73 Thai baht from 29.72.

Copyright AFP (Agence France-Presse), 2011