FXpert | Thu Oct 17, 2013 12:57am BST

Dollar held aloft pending Senate vote on U.S. deal

A one Australian dollar coin ($1.09) is seen in this picture illustration taken in Sydney April 29, 2011.
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U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. Picture taken August 2, 2013.
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A picture illustration shows a U.S. dollar bank note and a one Euro coin, taken in Warsaw January 26, 2011.
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A picture illustration shows Japanese 10,000 yen notes featuring a portrait of Yukichi Fukuzawa, the founding father of modern Japan, taken in Tokyo August 2, 2011.
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Buying and selling prices are displayed in the window of a foreign exchange service location in Sydney, October 28, 2008.
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TOKYO (Reuters) - The dollar tested three-week highs against the yen in early Asian trade on Thursday, buoyed by hopes that a pending U.S. Senate vote would help bring the U.S. fiscal standoff and government shutdown to an end.

U.S. Senate leaders announced a deal on Wednesday that, if passed, would close the latest chapter in America's fiscal wrangling.

The agreement must be approved by votes in the Senate and the House of Representatives, but politicians who had opposed previous attempts at compromise appeared ready to refrain from blocking its passage.

The U.S. Senate could vote at around 6 p.m. EDT (23:00 P.M. EDT) on the legislation, a senior Senate aide said.

"Resolution to suspend the debt ceiling and reopen the government through next year still appears within reach," Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York, said in a note to clients.

"Panic not if by this time tomorrow the wheel appears loose - it will soon be tightened back on to the car," he added.

The dollar rose 0.2 percent against the yen to 98.96, after earlier matching a high of 98.97 yen on Wednesday. That was its highest since Sept 27, and the last day it traded above the 99-yen level. Stop-loss orders were said to lie around 99 yen, which would likely break if the deal were to pass, market participants said.

The dollar/yen edged above its daily Ichimoku cloud on Wednesday and was still trading above the top of the cloud at 98.83 yen, with its base at 98.68 yen.

The dollar index, which tracks the greenback against a basket of currencies, was up 0.1 percent at 80.543 after touching a high of 80.754 in the previous session, its highest since Sept 18.

The euro was down about 0.1 percent against the dollar at $1.3519, though it remained above a two-week low of $1.3472 hit on Wednesday.

The deal would extend U.S. borrowing authority until February 7, and give the Treasury Department the means to temporarily extend its borrowing capacity beyond that date in case of another political impasse early next year. It would fund government agencies until the middle of January.

Until the statutory borrowing limit is actually increased, investors are likely to continue shunning Treasury bills maturing in the latter half of October. A technical default remains possible if Congress fails to pass the latest deal.

(Additional reporting by Reuters FX analyst Rick Lloyd in Singapore; Editing by Shri Navaratnam)