BLBG:Dollar Trades at Almost Month Low Versus Yen on Shutdown
The dollar traded at almost a month low against the yen as a partial shutdown of the U.S. government delayed a key jobs report, clouding the outlook for when the Federal Reserve will reduce stimulus.
The Bloomberg U.S. Dollar Index dropped to the lowest level in two weeks as Atlanta Fed President Dennis Lockhart said the shortage of data “would tend to make me somewhat more cautious” about reducing the pace of bond purchases. Lawmakers still need to agree on raising the debt limit. The pound fell against all its 16 major counterparts amid speculation recent gains were excessive. Australia’s dollar rose amid bets the central bank will refrain from cutting interest rates.
“If you look at most cases of a shutdown since the 1970s, you can have the dollar underperforming versus developed-market currencies, so you have the traditional safe havens like the yen and Swiss, but also wider developed markets,” said Chris Walker, a foreign-exchange strategist at Barclays Plc in London. “In terms of direct economic impact, the debt ceiling is by far the most important indicator.”
The dollar fell 0.1 percent to 97.21 yen at 7:29 a.m. New York time, extending this week’s decline to 1.1 percent. It touched 96.96, about the lowest since Aug. 28.
The U.S. currency rose 0.2 percent to $1.3590 per euro, having dropped 0.5 percent since Sept. 27. The yen strengthened 0.3 percent to 132.13 per euro.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, gained 0.1 percent to 1,009.20 after falling to 1,006.47, the lowest since Sept. 19.
Data Delayed
The first partial shutdown of the U.S. government in 17 years has delayed three economic releases this week, including the monthly payrolls report and the official jobless rate, which had been scheduled for release today.
“Less data is not helpful in gauging where the economy is and where it’s going,” Lockhart said yesterday in Atlanta. If the shutdown lasts until the Fed’s next meeting on Oct. 29-30, “it would be very hard to make a decision” about reducing quantitative easing, he said.
A number of other central-bank officials are scheduled to speak today including New York Fed President William Dudley, Dallas Fed President Richard Fisher and Richmond Fed President Jeffrey Lacker.
BlackRock Inc. (BLK)’s Larry Fink and Pacific Investment Management Co.’s Bill Gross yesterday expressed confidence the U.S. will avoid a default. The congressional dispute will be resolved “very rapidly,” Fink said. Gross said a default is “not a realistic proposition.” The government will run out of borrowing authority on Oct. 17, according to the Treasury.
Increasing Volatility
Options traders raised bets on price swings between the dollar and the euro to the most in almost four weeks.
One-month implied volatility for the pair, based on option prices, rose to 7.72 percent on Oct. 2, the highest since Sept. 9. It was at 7.34 percent today, up from 6.57 percent on Sept. 19, which was the lowest since October 2007.
“The debt-ceiling debate has increased the risk for accentuated moves in euro-dollar in either direction,” Valentin Marinov, head of Group-of-10 foreign-exchange strategy at Citigroup Inc. in London, wrote in a note to clients. “An escalation of market uncertainty about the deadlock in Washington could intensify the demand for safe-haven proxies for the dollar.”
Pound Falls
The pound fell for a second day against the dollar, after reaching a nine-month high this week, amid speculation the U.K. economic recovery isn’t strong enough to warrant an early interest-rate increase.
Bank of England policy makers, who are due to meet next week, have said they will keep the benchmark interest rate at a record low until unemployment falls to 7 percent. The jobless rate was 7.7 percent in the second quarter.
“Some of the momentum in the early rate hike argument has been lost,” said Jane Foley, senior currency strategist at Rabobank International in London. “People are taking off some of their long positions, in case we see a negative shock,” she said, referring to bets an asset will gain.
The pound slid 0.6 percent to $1.6053 after rising to $1.6260 on Oct. 1, the highest level since Jan. 2.
The Aussie strengthened before an industry report next week on service activity in China, the South Pacific nation’s biggest trading partner.
The Reserve Bank left its benchmark interest rate at 2.5 percent on Oct. 1, saying earlier cuts are still filtering through the economy and already driving up asset prices.
“We’ve shifted up our year-end forecast for the Australian dollar,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. (WBC), which sees the Aussie at 95 U.S. cents by Dec. 31 from 92 cents previously. “Australian households are showing less signs of risk aversion.”
Australia’s currency gained 0.3 percent to 94.24 U.S. cents, having appreciated 1.2 percent this week.
To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
