Dollar Falls to 8-Month Low Versus Euro on Shutdown; Yen Drops

The dollar slid to an eight-month low versus the euro as the U.S. government’s partial shutdown continued, adding to concern it will slow economic growth and postpone a tapering of monetary stimulus.
The Bloomberg U.S. Dollar Index fell to the lowest in two weeks as House Speaker John Boehner signaled a lack of progress on resolving the fiscal impasse after congressional leaders met President Barack Obama. U.S. lawmakers still need to agree on raising the debt limit to avoid a default after Oct. 17. Euro demand was bolstered before a report forecast to show retail sales in the currency bloc rose in August. The yen retreated as Asian stocks rallied.

5:20

Oct. 3 (Bloomberg) -- Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore, talks about the U.S. debt ceiling, Federal Reserve monetary policy, and the implications for the dollar and the euro. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

“The focus is on the U.S., and the ongoing pushback we’re seeing in tapering expectations, and the toll that’s taking on U.S. bond yields and the U.S. dollar,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The fiscal shenanigans in Washington mean more potential for volatility and choppiness.”
The dollar declined 0.2 percent percent to $1.3607 per euro as of 6:34 a.m. in London after reaching $1.3623, the weakest since Feb. 4. The greenback advanced 0.3 percent to 97.68 yen after dropping 0.9 percent over the past two days. Japan’s currency retreated 0.5 percent to 132.92 per euro.
The Bloomberg U.S. Dollar Index, which tracks the performance of the greenback against 10 leading global currencies, was little changed at 1,008.21 after falling to its lowest level since Sept. 19.
Benchmark 10-year Treasury yields were at 2.62 percent, after reaching a seven-week low of 2.59 percent on Sept. 30. The MSCI Asia Pacific Index of shares rose 0.5 percent.

No Breakthrough

Boehner and other congressional leaders met with Obama for more than an hour yesterday in Washington. As he exited the meeting at the White House, Boehner said Obama must recognize that the U.S. has a divided government.
“The American people expect their leaders to come together and try to find ways to resolve their differences,” said Boehner, an Ohio Republican. Obama has said he won’t negotiate with Republicans on the budget until they reopen the government and raise the borrowing limit without conditions.
House Republican leaders plan to bring up a measure to raise the debt limit as soon as next week as part of a new attempt to force Obama to negotiate on the budget, according to three people with knowledge of the strategy.

Dollar Loses

“The U.S. dollar continues to be the loser from the Washington standoff,” National Australia Bank Ltd. analysts, led by Peter Jolly wrote in an e-mailed note to clients. In addition to concerns about a drag on economic growth, “fears are also mounting that the ongoing standoff will jeopardize any resolution to the separate debt ceiling issue.”
The government shutdown comes as the Federal Reserve weighs whether the recovery is strong enough to warrant paring back quantitative easing.
Boston Fed President Eric Rosengren, a consistent backer of record stimulus who votes on policy this year, said yesterday that the central bank refrained from tapering its bond purchases last month because growth was lower than forecast and fiscal policy posed a risk to the outlook.
San Francisco Fed President John Williams, Atlanta Fed President Dennis Lockhart, Dallas Fed President Richard Fisher and member of the Fed board of governors Jerome Powell are all scheduled to speak today.

Jobless Claims

Americans probably filed more claims for unemployment benefits last week, economists forecast in a Bloomberg News poll before today’s Labor Department report. Jobless claims rose 10,000 to 315,000 in the week ended Sept. 28, according to the survey median.
The Institute for Supply Management’s non-manufacturing index fell to 57 in September from 58.6 a month earlier, the Tempe, Arizona-based group’s report may show, according to the median estimate in a separate poll. Readings greater than 50 indicate growth.
The U.S. Labor department won’t release its monthly payrolls report tomorrow if the government remains closed, according to the Bureau of Labor Statistics.
The dollar has fallen 0.6 percent in the past week, according to Bloomberg Correlation Weighted Indexes. The yen has strengthened 0.9 percent and the euro has gained 0.4 percent.
“You see continued improvement in the periphery” Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore, said in a Bloomberg Television interview today. “In the immediate future, with this very easy Fed policy, the euro could continue to rally towards $1.40.”
Euro-area retail sales rose 0.2 percent in August following a 0.1 percent gain in the previous month, economists predicted before the data due today.
Demand for the yen faltered as Japanese investors bought 672.1 billion yen ($6.9 billion) of overseas bonds and notes in the week ended Sept. 27, according to figures released by the Ministry of Finance.
Investors are seeking higher yields as the Bank of Japan drives down interest rates with more than 7 trillion yen of monthly bond purchases to defeat deflation.