The Japanese yen bucked its recent weakening trend to rise against other major currencies as concerns over the US fiscal cliff dominated forex trading.

The US dollar hit a one-week low of Y81.67 against the yen while the euro hit a weekly low of Y105.25, as currency markets responded to comments made by Harry Reid, a US senator, late on Tuesday warning that “little progress” was being made in US budget talks.

But risk-related currencies pared some of their losses after President Barack Obama said he hoped to strike a deal before Christmas.

“The fiscal cliff is casting a long shadow over the market and causing activity to dwindle even faster than is normal at this time of year,” warned analysts at Citigroup.

The dollar was also softer against other major currencies after figures on the US housing market were lower than expected, with new home sales in October falling to 368,000, down from expectations of 390,000 and lower than the previous month.

Commodity currencies performed well, with the New Zealand dollar gaining 0.4 per cent to $0.8234. The US dollar fell 0.2 per cent against the Canadian dollar to C$0.9930.

“Expectations for interest rates in Canada have remained stable since Mark Carney announced his departure from the Bank of Canada,” said analysts at Scotia.

“Markets are pricing in only a 7 per cent chance of an interest rate hike in Canada over the next 12 months.”

The Aussie rose 0.3 per cent to $1.0476, shrugging off a forecast made on Wednesday by the OECD that Australia would cut interest rates from 3.25 per cent to a record low of 2.75 per cent early next year.

The euro recovered from earlier losses against the dollar, after hitting a session low of $1.2878 as the initially positive impact from Monday’s Greek debt deal on the single currency continued to fade. It was later 0.1 per cent lower at $1.2939 and remained subdued against the yen, losing 0.4 per cent to Y105.94.

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