Dollar Falls to 8-Month Low on Government Shutdown; Real Drops

The dollar slid to the weakest level in eight months versus the euro as the U.S. government’s partial shutdown added to concern economic growth will slow and prompt the Federal Reserve to delay reducing monetary stimulus.

The greenback remained lower versus Europe’s shared currency after claims for jobless benefits rose last week. The 17-nation currency was also supported after a report showed services output in the region expanded more than initially estimated last month. The Brazilian real declined after Moody’s Investors (JSIABOND) Service lowered its outlook on the nation’s credit rating to stable from positive.

“The shutdown is keeping investors wary of exposure to the dollar and dollar assets,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a telephone interview. “The shutdown itself is negative for the economy and the dollar, but it also raises serious doubts about lawmakers’ ability to come to an agreement before we get a drawn-out battle on the debt ceiling.”

The dollar depreciated 0.3 percent to $1.3619 per euro at 5 p.m. in New York, reaching the weakest since Feb. 4. The U.S. currency fell 0.1 percent to 97.27 yen. Japan’s currency lost 0.2 percent to 132.46 per euro.

JPMorgan Chase & Co.’s G-7 Volatility Index fell to 8.68 percent, almost the lowest since Sept. 18, the date on which the gauge touched a nine-month low.

Peso, Krona

The real declined from its highest level in two weeks after Moody’s cited rising debt and weak growth. The currency declined 0.7 percent to 2.2069 per dollar after earlier sliding 1 percent, the most in a week.

The Mexican peso weakened versus most of its 16 most-traded counterparts after consumer confidence in the nation decreased to 94.1 in September, falling short of an estimate of 96.4 based on an economist survey conducted by Bloomberg. The peso slipped 0.3 percent to 13.1586 per dollar.

Sweden’s krona rose as Stockholm-based Swedbank AB published an index based on responses from purchasing managers in the services industry that was 53.3 last month from 53.7 in August. A reading above 50 signals expansion and the measure has been above that level since July.

The currency strengthened 0.5 percent to 6.3458 per dollar after reaching the highest since Sept. 20.

Euro Measure

The 14-day relative strength index for the euro versus the greenback rose to 70.7, exceeding the 70 level some traders consider a sign an asset has risen too much, too quickly, and is about to change direction.

Euro-area services, measured by an index based on a survey of purchasing managers in the services industry, rose to 52.2, exceeding a Sept. 23 estimate of 52.1 and up from 50.7 in August, London-based Markit Economics said today. The gauge has been above 50, indicating growth, for two months.

Applications (INJCJC) for U.S. unemployment benefits increased by 1,000 to 308,000 in the week ended Sept. 28, a Labor Department report showed today in Washington. The median forecast of 50 economists surveyed by Bloomberg called for a rise to 315,000.

Labor said that it won’t issue the September payrolls report tomorrow as initially scheduled because of the partial government shutdown.

The Bloomberg U.S. Dollar Index, which tracks the performance of the greenback against 10 leading global currencies, was fell 0.1 percent to 1,007.87 after reaching the lowest level since Sept. 19.

Washington Gridlock

Ohio Republican John Boehner and other congressional leaders met U.S. President Barack Obama for more than an hour yesterday in Washington. 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.

“The debt ceiling and government shutdown are big reasons why the dollar isn’t trading well versus the euro,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. (WBC) in New York, said in a telephone interview. “Markets reacted temporarily to the jobless numbers, but the bigger focus is on the government reaching a resolution.”

The yen declined as figures released by the Ministry of Finance showed Japanese investors bought 672.1 billion yen of overseas bonds and notes in the week ended Sept. 27.

Japan Yields

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.

Trading in over-the-counter foreign-exchange options totaled $30.7 billion, from $29.3 billion yesterday, 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 $6.1 billion, the largest share of trades at 20 percent. Options on the euro-dollar rate totaled $4.7 billion.

Dollar-yen options trading was 25 percent more than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 21 percent more than average.

The greenback has gained 2.1 percent this year, according to Bloomberg Correlation-Weighted Indexes. The euro was the biggest gainer, climbing 5.8 percent. The yen led all decliners with a 10.1 percent decrease.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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