US Dollar falls as fiscal cliff worries grow

The US dollar dropped to its lowest level against the euro in three months Friday, the euro going above US$1.31 as politicians in Washington appeared no closer to averting the economy-crunching fiscal cliff. With just over two weeks to go before the deadline, markets began to show strains from worries that US leaders will not be able to carve out a compromise deal to beat the year-end deadline to skirt the cliff's harsh mandatory budget cuts and tax hikes. At 2200 GMT, the euro was at US$1.3161, compared to US$1.3073 late Thursday. The US dollar has slipped steadily for a week amid cliff fears and the Federal Reserve's extension of its bond-buying easy monetary accommodation, aimed at sparking more growth in the sluggish US economy. The yen was mixed ahead of Sunday's Japanese general election: the euro gained to 109.94 yen from 109.38 yen, while the US dollar slipped to 83.52 yen from 83.64. "According to most reports out of Japan, former Prime Minister Shinzo Abe is well ahead in polls and his coalition government should easily take more than 60 per cent of the seats in Parliament, leading to Abe's return to the PM seat," said Neal Gilbert of GFT. "Abe has made many declarations that he wants to become more aggressive with monetary policy by lowering interest rates to 0 per cent, increasing the inflation target to 3 per cent, and increasing the amount of QE (quantitative easing)." Gilbert added that if Abe regains the premiership, the yen's weakness "may be much more long lasting." The US dollar slipped against the Swiss franc to 0.9172 francs, while the British pound edged higher to US$1.6173.