BLBG: Dollar Drops as U.S. Debt Limit Spurs Safety Demand; Rupee Falls
The dollar sank to its weakest level in eight weeks against the yen amid concern U.S. lawmakers will fail to reach an agreement on raising the debt ceiling needed to avoid the first American default.
Switzerland’s franc rose versus the greenback after House Speaker John Boehner said the U.S. may fail to meet its obligations unless President Barack Obama negotiates. The euro gained versus most major peers even as investor confidence in the 17-nation region waned. The Indian rupee fell as the Reserve Bank of India made its second interest-rate cut in a month.
“There were some expectations that Washington would get a bit closer to a deal over the weekend, and markets may be disappointed more progress wasn’t made,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a phone interview. “This is weakening the dollar amid risk aversion.”
The dollar lost 0.4 percent to 97.08 yen at 10:12 a.m. New York time, after touching 96.81, its weakest level since Aug. 12. The Japanese currency added 0.4 percent to 131.62 per euro. The franc appreciated 0.2 percent to 90.57 centimes per dollar. The euro rose as much as 0.2 percent to $1.3591 before trading at $1.3560.
The yen tends to strengthen during periods of financial and economic turmoil because Japan isn’t reliant on foreign capital to fund its deficits. The Japanese currency is close to strengthening beyond its 200-day moving average for the first time since November. The measure is currently at 96.68.
Currency swings as measured by the JPMorgan Global Volatility Index fell to as low as 8.76 on Oct. 4, the least since May 9. It was 8.85 today, versus a 2013 average of 9.38.
Rupee, Pound
India’s rupee declined versus all of its 31 most-traded counterparts as the nation’s central bank cut an interest rate, taking advantage of a recent climb in the rupee to ease a cash squeeze imposed to support the currency. It slid 0.6 percent to 61.7950 per dollar after falling 0.8 percent, the most on an intraday basis since Sept. 20, to 61.9550.
Sterling gained versus most of its major peers after a report showed optimism in the U.K.’s financial industry reached a 17-year high in the third quarter, underlining the strength of the British economy. Sterling climbed 0.5 percent to $1.6082 after increasing 0.6 percent, the most since Sept. 27.
New Zealand’s dollar fell versus the greenback as the country’s finance minister, Bill English, said the currency remains too strong and is hampering exports. The kiwi decreased 0.1 percent to 83.11 U.S. cents. It has gained 3.9 percent against its American counterpart in the past month.
‘Too High’
“The exchange rate, in our view, is still too high,” English said in Wellington after the Treasury published financial statements for the year through June. “It remains a headwind for the export sector.”
U.S. Treasury Secretary Jacob J. Lew renewed his call for extending the nation’s debt limit to avoid a default.
“If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default,” Lew said yesterday on CNN. “Congress is playing with fire.” The government shutdown entered a seventh day after lawmakers failed to find an agreement on the budget.
The dollar will resume its advance after an accord on the debt ceiling is reached, gaining to between 100 yen and 105 yen by year-end, said Roberto Mialich, a senior currency strategist at UniCredit SpA (UCG) in Milan. The median forecast of analysts and strategists surveyed by Bloomberg is for the dollar to trade at 103 in December and 105 by the end of the first quarter.
Budget Path
Boehner said the House can’t pass an increase to the U.S. debt ceiling without packaging it with other provisions. The Obama administration has said it won’t negotiate with Republicans over funding the government or raising the debt ceiling, arguing that it is part of the basic functions of Congress and shouldn’t be used as a point of leverage. The U.S. will run out of its ability to borrow on Oct. 17.
“The view is that these guys might be crazy, but they’re not suicidal,” Richard Jerram, chief economist at Bank of Singapore Ltd., said in an interview on Bloomberg Television. “We should get a deal sometime in the next week.”
The dollar fell 2.5 percent in the past month, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was little changed, while the franc rose 1.6 percent and the euro gained 0.7 percent. The pound advanced 0.6 percent.
Forecaster Estimates
The most accurate foreign-exchange forecaster in the past quarter predicts the U.S. currency will rebound against the euro and pound. Hendrix Vachon, an economist and currency strategist at Desjardins Group, a Canadian credit union, foresees a quick resolution to the congressional standoff that will help the greenback rally, as U.S. growth outpaces Europe.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, fell 0.1 percent to 1,008.99, the sixth decline in seven days.
Europe’s common currency traded at almost its strongest level since February against the dollar. It reached that level, 1.3646, on Oct. 3.
An index measuring investor confidence in the euro region fell to 6.1 this month from 6.5 in September, the Limburg, Germany-based Sentix research institute said today in an e-mailed statement. Economists had predicted an increase to 8.5, according to the median of 16 estimates in a Bloomberg News survey.
Options Trading
Trading in over-the-counter foreign-exchange options totaled $9 billion, from $23 billion on Oct. 4, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $3 billion, the largest share of trades at 33 percent. Options on the dollar-Chinese-yuan rate totaled $1.5 billion, or 16 percent.
Dollar-yen options trading was 35 percent more than the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Dollar-yuan options trading was 468 percent more than average.
To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
