Japanese yen and U.S. dollar banknotes are seen in this illustration picture taken June 15, 2022. REUTERS/Florence Lo/Illustration

By Tom Westbrook

SINGAPORE (Reuters) -The safe-haven yen hit its lowest since February on Tuesday while riskier currencies were firm against the dollar as traders anticipated an end to the long U.S. government shutdown.

The euro was steady at $1.1555 and sterling has been creeping higher to $1.3165.

The U.S. Senate passed a deal on Monday that would restore U.S. federal funding and end the longest shutdown.

It now heads to the House, where Speaker Mike Johnson has said he would like to pass it as soon as Wednesday and send it on to President Donald Trump to sign into law.

MOOD DRIVES MOVES

A gain of about 0.7% for the Australian dollar to $0.6536 and a drop in the yen have been the biggest moves since a breakthrough Senate vote on Sunday.

"Currencies moved in tandem with the risk-on sentiment. So some of the risk-sensitive currencies like the Aussie, they have benefited from, while the safe-haven currencies like the yen have softened a bit," said Bank of Singapore strategist Moh Siong Sim.

The Aussie handed back some of its rise to hover at $0.6520 in the Asia afternoon.

The unloved yen remained under pressure, however, as Japan's new Prime Minister Sanae Takaichi has called for policymakers to go slow on interest rate hikes at the same time as U.S. policymakers have turned cautious on further cuts.

"There was a lot of expected interest rate convergence between the U.S. and Japan, and that's probably not playing out as smoothly or as expected," said Bart Wakabayashi, branch manager at State Street in Tokyo.

"Maybe long yen players are unwinding."

KIWI GROUNDED

British weekly wage data and Germany's ZEW sentiment survey are due later in the session.

Earlier, a survey showed New Zealand inflation expectations were subdued for the fourth quarter, with a cut in the official cash rate expected later in the month.

The New Zealand dollar has been under pressure for months as the economy slows, and it sagged 0.2% to $0.5635 on Tuesday, not far from a seven-month trough. On Monday it made a 12-year low against the Australian dollar, reflecting a divergent outlook for interest rates in the Antipodes.

Among smaller currencies, a sharp drop in South Korea's won sent it to a seven-month low and a loss of more than 2% for the month so far as both domestic and foreign cash flees the tech-heavy local stock market.

"The recent upside in USD/KRW has been driven primarily by portfolio outflows, particularly locals’ investments in U.S. equities," said Kiyong Seong, lead macro strategist for Asia at Societe Generale in Hong Kong.

(Reporting by Tom Westbrook; Editing by Shri Navaratnam, Sam Holmes and Kim Coghill)