By Patrick Graham
LONDON (Reuters) - The dollar steadied on Thursday after another politically-driven slide against the euro and yen, helped by nerves over what message Federal Reserve policymakers will send during meetings in Jackson Hole starting later in the day.
The dollar's 14 percent decline against the euro this year has come courtesy of a collapse in expectations for tax cuts and other pro-growth moves by the Trump administration that weaken the case for further rises in Fed interest rates.
But the U.S. central bank remains the only of the world's big monetary authorities to have begun raising rates and it is also seeking to rationalize the huge stores of securities it has built while pumping cash into the economy in the past 8 years.
Any harder signal on that issue from Fed chair Janet Yellen when she speaks on Friday would be liable to help the greenback. The U.S. currency gained around 0.2 percent in early deals in Europe, trading at $1.1792 per euro.
"The market is short dollars already and from a risk-reward point of view, it makes sense to close some of those positions, just in case Yellen said something hawkish," said Jane Foley, a strategist with Rabobank in London.
The dollar also rose around a quarter of a percent to 109.31 yen
That was still just a minimal recovery from losses since President Trump on Tuesday suggested that a shutdown of the government was possible and threatened to terminate the North American Free Trade Agreement.
His remarks, made ahead of a debate in Congress over a spending package and a rise in the debt ceiling, also prompted Fitch Ratings to warn about the impact on the government's credit rating.
Congress will have about 12 working days, when it returns on Sept. 5 from summer break, to approve spending measures to keep the government from shutting. Also, a deadline is nearing for raising the cap on how much the federal government may borrow.
In June, the Congressional Budget Office said Congress needs to raise the debt limit by early to mid-October to avoid a default.
Sim Moh Siong, FX strategist for Bank of Singapore, said it was unclear whether Trump's comments were a negotiation tactic or constitute a real threat that could lead to a government shutdown.
"We have to think a bit harder about the downside risks of the dollar, especially against the safe havens," Sim said.
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