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Dollar Advances Versus Euro as Debt Deadline Looms

The dollar gained versus the euro for the first time in three days as U.S. lawmakers worked to end the two-week government shutdown and keep the U.S. from exhausting its ability to borrow money.

The yen jumped from a two-week low versus the U.S. currency after Fitch Ratings put the nation’s AAA credit grade on rating watch negative, saying the authorities have failed to raise the debt ceiling as the deadline looms. Senate leaders said talks on a bipartisan plan were put on hold two days before the debt-limit deadline while the House considers its competing measure. Norway’s krone slid as the nation’s trade surplus shrank.

“A deal looked possible over the weekend, and we’ve had nothing but negative news and the latest sentiment is definitely negative,” Chris Gaffney, senior market strategist at Everbank Wealth Management Inc., said in an interview from St. Louis. “The yen is seen as a safe-haven currency, and it’s getting a lot of interest because of that.”

The dollar gained 0.3 percent to $1.3524 per euro at 5 p.m. New York time. It reached $1.3480, the strongest level since Sept. 30, before the U.S. government shutdown. The greenback sank as much as 0.6 percent to 98 yen before trading at 98.16 yen, down 0.4 percent. Earlier it touched 98.70 yen, the strongest level since Oct. 1. The euro slid 0.7 percent to 132.76 yen.

Norway’s krone fell against all of its 16 most-traded peers as a report showed the nation’s trade surplus decreased in September, while separate data showed house prices fell more than economists forecast in the third quarter.

‘Disappointing Data’

“This disappointing data we’ve had today has probably seen investors take a step back from entering long-krone positions,” Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London, said of the currency. “The trade balance has narrowed quite significantly.” Long positions are bets an asset will gain in value.

The krone weakened 0.8 percent to 6.0228 per dollar and lost 0.5 percent to 8.1450 per euro.

Australia’s dollar climbed to the highest level since June versus the U.S. currency as traders pared wagers for further interest-rate cuts by the central bank this year. Minutes of its Oct 1 meeting showed policy makers agreed “the bank should again neither close off the possibility of reducing rates further nor signal an imminent intention to reduce them.”

The Aussie advanced 0.4 percent to 95.26 U.S. cents and touched 95.48 U.S. cents, the strongest since June 19.

House Vote

Senate Democrats leaving a party meeting today blamed House Speaker John Boehner for undercutting the talks between Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell. House Republicans’ plan contains policy conditions Democrats have rejected.

The House will vote as soon as tonight on legislation that would extend government funding through Dec. 15 -- not the Jan. 15, 2014, date in a potential Senate deal -- and omit a delay in the medical device tax discussed earlier today, said House Ways and Means Committee member Devin Nunes, a California Republican.

The revised proposal still would suspend the $16.7 trillion debt limit through Feb. 7, 2014, and temporarily prevent the administration from using what are known as extraordinary measures to delay a debt-ceiling breach, said an aide who spoke on condition of anonymity to discuss the plan.

Hand Grenade

Boehner earlier told a closed-door meeting of Republicans the Senate measure was a hand grenade coming at the House, said Representative John Fleming, a Louisiana Republican.

“We just need to wait and see what the House does,” said Adam Jentleson, a spokesman for Reid. “We expect them to fail, and then the Senate deal will re-emerge.”

Without an agreement, U.S. borrowing authority lapses on Oct. 17, the Treasury has said. The federal government would start missing payments sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.

“It’s a fairly common shared view that something will probably get passed,” Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc., said in a phone interview. “People are staying a bit neutral in terms of taking a position here with any kind of conviction.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.1 percent to 1,012.59 after declining 0.2 percent in the past two days.

“The dollar has been sold off too much against the other major currencies,” said Kasper Kirkegaard, a senior strategist at Danske Bank A/S (DANSKE) in Copenhagen. “Any changes in sentiment will make it strengthen.”

The U.S. currency declined 0.7 percent in the past month, according to Bloomberg Correlation Weighted Indexes, which track 10 developed-nation currencies. The euro gained 0.9 percent, while the yen rose 0.3 percent.

Volatility Gain

JPMorgan Chase & Co.’s Global FX Volatility Index, a gauge of price swings, rose to 8.3 percent after dropping to as low as 8.28 percent, the lowest level since Jan. 24. The average this year is 9.35 percent.

Trading in over-the-counter foreign-exchange options totaled $45 billion, from $33 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 euro-dollar exchange rate amounted to $8.1 billion, the largest share of trades at 17.9 percent. Options on the dollar-yen rate totaled $8 billion, or 17.7 percent.

Euro-dollar options trading was 274 percent more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 96 percent above average.

To contact the reporter on this story: Andrea Wong in New York at awong268@bloomberg.net

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

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