Dollar near highs as German political impasse pressures euro

By Lisa Twaronite

TOKYO (Reuters) - The dollar gave back some of its gains in Asian trading on Tuesday but stuck close to a one-week high against a basket of currencies as a German political deadlock continued to pressure the euro.

The dollar index, which tracks the greenback against a basket of six major rival currencies, dipped 0.1 percent to 94.029 (DXY), but was still within sight of its overnight peak of 94.104, its highest since Nov. 14.

The euro edged up 0.1 percent to $1.1739 , nursing losses after dropping to $1.1722 in the previous session after German coalition government talks collapsed.

German Chancellor Angela Merkel, whose conservative bloc lost seats in September's election, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.

Merkel said she would prefer a new election to ruling with a minority, but Germany's president told the parties they owed it to voters to try to form a government.

"It was primarily a euro weakness story, based on the failure to form a coalition government in Germany," said Bill Northey, chief investment officer at the private client group of U.S. Bank in Helena, Montana.

"Stepping back from the daily activities, the big mountain that we're still looking to traverse is still tax reform -- what form, and on what timeline," Northey said.

U.S. Republicans are not expected to push major tax cuts through Congress this year, according to a majority of economists in a Reuters poll, who were also sceptical that tax reform would provide a significant boost to the economy.

Trading was expected to be relatively thin this week ahead of the U.S. Thanksgiving holiday on Thursday, which is also a national holiday in Japan.

The calendar is relatively sparse ahead of the holiday, with Federal Reserve Chair Janet Yellen scheduled to give a speech later on Tuesday. Minutes from the Fed's November meeting will be released on Wednesday.

Against the yen, the dollar was slightly lower on the day at 112.59 , holding above its overnight low of 111.89 yen, which was its lowest since mid-October.

The euro was steady on the day against the yen at 132.15 yen (EURJPY=), after skidding as low as 131.16 on Monday, its lowest since Sept. 15.

"Ahead of this week's holidays, it would not have been unusual for the dollar to have fallen on position adjustments as investors pared their dollar-long positions, in case there was some dollar-negative news while they were away," said Kumiko Ishikawa, FX analyst at Sony Financial Holdings in Tokyo.

"But due largely to the euro's moves, the dollar is holding up," she said.

The Australian dollar was down 0.2 percent at $0.7536 , after falling as low as $0.7529 earlier, its deepest nadir since mid-June.

Minutes of the Reserve Bank of Australia's (RBA) Nov. 7 policy meeting showed it harboured "considerable uncertainty" about how quickly wages growth and inflation might pick up.

After that meeting, the RBA trimmed its forecasts for core inflation to below its long-term 2-3 percent target band for another two years.

Bitcoin slipped nearly 4 percent on Tuesday after notching a fresh record high of $8,253 (BTC=BTSP).