The dollar and euro touched three-week highs versus the yen as Congress voted in favor of a deal to end a U.S. government shutdown and raise the debt limit, damping demand for haven assets.
The yen held losses from yesterday against its U.S. and European peers as Asian stocks rose. The greenback remained lower against higher-yielding currencies such as New Zealand’s with markets gauging the impact of the recent impasse on economic growth and prospects theFederal Reserve will taper stimulus. Policy makers including Fed Bank of New York PresidentWilliam Dudley speak today.
“The yen is going to be under a little bit of pressure,” said Emma Lawson, the Sydney-based senior currency strategist at National Australia Bank Ltd. “There is still some uncertainty because the deal is effectively just kicking the problem down the road.”
The dollar lost 0.1 percent to 98.64 yen as of 1:05 p.m. in Tokyoand touched 99.01, the most since Sept. 27. It traded at $1.3546 per euro from $1.3534 yesterday. Europe’s common currency was little changed at 133.62 yen after earlier reaching 133.84, the strongest level since Sept. 26.
The Senate voted 81-18 to halt the 16-day shutdown and raise the borrowing limit. The House of Representatives voted 285-144 to clear a measure that now heads to President Barack Obama for his signature. Obama plans to sign the bill tonight, Sylvia Mathews Burwell, director of the Office of Management and Budget, said in a statement.
Deal Framework
The framework negotiated by Senate Majority Leader Harry Reid, a Democrat, and Minority Leader Mitch McConnell, a Republican, would fund the government through Jan. 15, 2014, and suspend the debt limit until Feb. 7, setting up another round of confrontations then.
The uncertainty resulting from continued political disruption has a “silver lining,” because it means a slower pace of stimulus tapering by the Fed, said Russ Koesterich, the chief investment strategist for BlackRock Inc., in a Bloomberg Television interview. Weakenedconsumer confidence may cause “more of a drag” on fourth-quarter growth than expected, he said.
The dollar has dropped 0.7 percent in the past month, according to Bloomberg Correlation Weighted Indexes, which track 10 developed-country currencies. The euro gained 0.9 percent, while the yen declined 0.2 percent.
The MSCI Asia Pacific Index of shares climbed 0.8 percent.
Philadelphia Index
The Fed Bank of Philadelphia’s general economic index probably fell to 15 in October from 22.3 the previous month, a report today is forecast to show, according to the median in a Bloomberg News survey. Readings greater than zero signal growth. The Empire State index for the New York region sank to 1.5 this month, a five-month low, an Oct. 15 report showed.
“The Philadelphia Fed is likely to echo the weakness in the Empire survey earlier this week, which was presumably driven in part by concerns about the government shutdown,” BNP Paribas SA currency strategists Vassili Serebriakov and Daniel Katzive in New York wrote in a note to clients.
Reports delayed by the shutdown, including the September payrolls data, will begin to be released in coming days and markets may start to rebuild positions betting on dollar gains versus the yen, pound and euro, the BNP strategists wrote.
The Bloomberg U.S. Dollar Index, which tracks the U.S. currency against 10 other major currencies, fell 0.1 percent to 1,010.43, weakening for a second day. The Australian dollar has been the biggest gainer versus the greenback this month, rising 2.4 percent, followed by the Mexican peso’s 2 percent advance and the Brazilian real’s 1.7 percent climb.
Carry Trade
“In the short term, the clearest trend would be carry does a little bit better in the currency space,” Richard Yetsenga, the head of global markets research in Sydney at Australia & New Zealand Banking Group Ltd., said in a Bloomberg Television interview. “Certainly that seems to be the easiest way to explain recent price action.”
In carry trades investors borrow cheaply in countries with low interest rates, and use the proceeds to buy currencies of economies with higher-yielding assets. Fed tapering is likely to happen no sooner than February, Yetsenga said.
Demand for the Aussie was also supported before a report tomorrow forecast to show China’seconomy grew 7.8 percent in the third quarter from a year earlier, from a 7.5 percent pace in the previous three months, according to the median estimate in a Bloomberg survey. China is Australia’s largest trading partner.
New Zealand’s currency added 0.1 percent to 84.31 U.S. cents following a 0.5 percent advance yesterday. The Aussie dollar rose as high as 95.69 U.S. cents, the most since June 18, before trading at 95.47 cents, down 0.1 percent form yesterday.
