Dollar Weakens Against Euro But Off Lows



Dollar Falls as U.S. Government Shutdown Looms; Yen Erases Gains

By John Detrixhe - 2013-09-30T21:16:50Z

The dollar fell against the majority of its most-traded peers as political wrangling about the U.S. budget threatened a partial government shutdown tomorrow.

The U.S. currency pared declines as three economic reports showed business activity expanded more than forecast. The yen erased its rally versus the dollar even with Congress deadlocked and a decision on raising the debt ceiling needed within three weeks. The euro gained as Italian Prime Minister Enrico Letta’s deputy finance chief expressed confidence in preventing the government from collapsing. The Australian dollar was unchanged versus the greenback before Reserve Bank of Australia officials meet.

“Markets are in the risk-off mode with the possible government shutdown in the U.S. and political uncertainty in Italy,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview. “The dollar has not been not playing the safe-haven role through this latest period I think because throughout the year the dollar tended to trade more positive with risk than negatively.”

The Bloomberg USD Index, which tracks the performance of a basket of 10 leading global currencies against the dollar, fell for a second trading-day, declining 0.1% to 1,011.85 at 5 p.m. New York time, after weakening as much as 0.2%.

Market Prices

The yen was little changed at 98.30 JPY/USD after touching 97.50, the strongest since Aug. 29. Japan’s currency fell 0.1% to 132.93 JPY/EUR after appreciating to 131.38, the strongest since Sept. 9. The euro was little changed at 1.3527 USD/EUR.

The New Zealand dollar, nicknamed kiwi, gained 7.4% versus the greenback this month, while yen fell 0.1%.

This quarter, the kiwi led all major gainers with a 7.3 percent increase, while the worst-performing South African rand has slipped 1.5%. Denmark’s krone is the best-performing currency in 2013 and the rand has plunged 15.5%.

RBA Governor Glenn Stevens and his board will keep the cash rate at a record-low 2.5%, according to all 33 economists surveyed by Bloomberg News. The Australian dollar (AUD) was unchanged, after four days of gains, at .9317 USD/AUD.

Brazil’s central bank increased its 2014 inflation forecast as a weaker currency undermines the world’s biggest interest rate increase, which is close to 9%. The real gained 1.6% to 2.2170 BRL/USD.

Uncertain Conditions

The U.S. Congress has one day to end a stalemate that raises the risk of the first government shutdown in 17 years and threatens talks to increase the debt limit. Failure to approve funding to keep the government open and to raise the debt ceiling would have a destabilizing effect on the economy, President Barack Obama said in a televised statement on Sept. 27. Closing the government would cut fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, according to economists from Moody’s Analytics Inc.

“There are so many uncertain factors ahead of us, it’s no wonder that risk is off,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “We are seeing the usual pattern with a stronger Swiss franc, yen, and if anything the dollar very much on the defensive.”

The MNI Chicago Report business barometer rose to 55.7 in September from 53 the prior month. Numbers greater than 50 signal expansion. The median forecast of economists surveyed by Bloomberg was 54.

The Dallas Fed’s manufacturing gauge jumped to 12.8, versus a Bloomberg poll’s projection of 5.5 and a reading in August of 5. The Institute for Supply Management’s Milwaukee index rose to 55, versus a forecast of 50 and an August reading of 48.2.

Italy Vote

Italy’s Letta said he will ask for a vote of confidence on Oct. 2, speaking on Rai 3 television. The Italian government has been torn apart by legal troubles facing former leader Silvio Berlusconi, whose criminal tax-fraud conviction subjects him to expulsion proceedings in parliament. Berlusconi allies have said they planned to quit the cabinet.

“We think he’ll survive the no confidence vote and keep the government going.” BNP Paribas’s Serebriakov said. “It’ll still be a weakened, but that’s our base case.”

Europe’s common currency slipped as much as 0.3 percent to 1.2214 CHF/EUR, the weakest since May 3, before trading at 1.2239.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@

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