WSJ:Asian Currencies Take U.S. Debt Impasse in Stride
TOKYO—Asian currency markets took the U.S. debt impasse largely in stride Monday, but the euro slid late in the session when Greece was downgraded to near-default status.
Democrats and Republicans missed a deadline they had set for themselves for a deal to raise the debt ceiling—and avoid default—in time for Asian markets to open. But while the dollar weakened, traders seemed if anything bored with the exercise. Data from EBS indicate activity among major currencies were barely half their average levels of the past 30 sessions.
Asian currency markets still expect "that something will get cobbled together," said Adrian McGowan, head of Asia-Pacific trading at Barclays Capital in Singapore.
But late in the session, Moody's slashed Greece by three notches to Ca, a cut above default, on expectations that the latest bailout will force "substantial economic losses" on private creditors.
The dollar fell to a four-month low of ¥78.12 in very early Asian trading but then recovered to near Friday levels. In the afternoon, it was at ¥78.40, from ¥78.56 in late New York trade on Friday. The euro, which swung in a $1.4117-$1.4342 range, was at $1.4357 from $1.4358 in New York.
In Washington, there was no sign of agreement, with senior players in both parties formulating their own debt plans.
For the Democrats, Senate Majority Leader Harry Reid said he is working on a back-up plan to increase the debt ceiling by $2.7 trillion, enough to last through next year's election; an aide said the plan won't include tax increases. Leading the Republican effort, House Speaker John Boehner was pressing ahead with a phased plan to cut the deficit by $1.2 trillion over 10 years and raise the debt ceiling only through the end of this year.
The Treasury Department says the U.S. will default on some obligations if Congress doesn't raise the debt ceiling by Aug. 2, although some analysts estimate the government won't run out of money until Aug. 8 or even Aug. 22.
But Standard & Poor's says that even if Washington staves off a default, it may downgrade the U.S. from AAA if there is no credible longer-term deficit-reduction plan.
The euro was at ¥112.58 from ¥112.76 late Friday in New York. The pound was at $1.6303 from $1.6286. The dollar was at 0.8100 Swiss franc from 0.8188 Swiss frac. The ICE Dollar Index was at 74.220 from 74.242.
