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Dollar Falls in Longest Streak Since 2011 on Debt-Limit Concern

The dollar fell for a fifth week, the longest stretch since April 2011, as Congress failed to agree on a way to raise the $16.7 trillion U.S. debt limit, spurring investors to seek other assets.

The Bloomberg U.S. Dollar Index traded at almost the lowest level since February as a stalemate between congressional Republicans and Democrats led to a partial government shutdown. The government will run out of borrowing authority Oct. 17, according to the Treasury Department. The euro reached its strongest level against the greenback in eight months as Italy’s government won a confidence vote. An index due out on Oct. 11 may show that U.S. consumer confidence fell this month, according to a Bloomberg survey.

“It’s not so much the impact on economic growth as just disruption to markets,” Daniel Brehon, a currency strategist at Deutsche Bank AG in New York, said in a phone interview. While odds are low, a U.S. default is “not a zero probability. That alone, even a small probability of a major event, has got to have people thinking to be safely positioned. It’s more pricing in tail risk than it is the impact on growth.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, declined 0.3 percent this week, the most in two weeks, to 1,009.98 in New York.

Market Prices

The dollar fell 0.8 percent to 97.48 yen, the third weekly drop. It touched 96.93, the lowest since Aug. 28. The U.S. currency weakened 0.3 percent to $1.3558 per euro. The yen strengthened 0.5 percent to 132.14 per euro.

Sterling fell the most this week of the dollar’s 16 most-traded peers, after reaching a nine-month high, amid speculation the U.K. economic recovery isn’t strong enough to warrant an early interest-rate increase.

The pound slid 0.8 percent to $1.6010 after rising to $1.6260 on Oct. 1, the highest level since Jan. 2.

Bank of England policy makers, who meet next week, have said they will keep the benchmark interest rate at a record low until unemployment falls to 7 percent. The jobless rate was 7.7 percent in the second quarter.

“Some of the momentum in the early-rate-hike argument has been lost,” said Jane Foley, senior currency strategist at Rabobank International in London. “People are taking off some of their long positions, in case we see a negative shock,” she said, referring to bets an asset will gain.

Real Rises

Brazil’s real rallied as the nation’s central bank maintained a $60 billion intervention program to support the currency and curb inflation by limiting import prices. The real has climbed 10 percent since the program was announced Aug. 22, a day after the currency touched a 4 1/2-year low.

The real climbed 1.8 percent 2.2117 per dollar.

The U.S. government will have $30 billion after Oct. 17 when borrowing auction is exhausted, according to the Treasury. The nation would be unable to pay all of its bills sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office.”

Money managers are getting out of Treasuries maturing closest to the debt-ceiling deadline and buying longer-maturity bills, yields indicate. One-month rates touched 0.19 percent yesterday, matching a 45-month high reached in November 2012, while the rate on three-month bills was 0.02 percent, the biggest inversion of the spread since September 2008.

House Speaker John Boehner said the way to open the partially shut government is for Democrats to negotiate with him and accept changes that would produce “fairness” under the Affordable Care Act. The shutdown has furloughed about 800,000 federal employees and is becoming a prolonged deadlock that merges with the debt-ceiling debate.

Obama Statement

“There will be no negotiations over this,” President Barack Obama said this week in Rockville, Maryland. “The American people are not pawns in some political game. You don’t get to demand some ransom in exchange for keeping the government running.”

The first partial shutdown of the U.S. government in 17 years delayed three economic releases this week, including the monthly payrolls report and the official jobless rate, which had been scheduled for release yesterday.

“Less data is not helpful in gauging where the economy is and where it’s going,” Atlanta Federal Reserve President Dennis Lockhart said Oct. 3 in Atlanta. If the shutdown lasts until the Fed’s next meeting on Oct. 29-30, “it would be very hard to make a decision” about reducing quantitative easing, he said.

The Federal Open Market Committee on Oct. 9 is scheduled to release the minutes of its previous meeting. Consumer confidence may have fallen to 76 from 77.5 the previous month, according to the median survey of 43 economists surveyed by Bloomberg. The Thomson Reuters/University of Michigan final index declined to a five-month low in September.

Italian Vote

Italian government bonds extended a weekly advance on optimism the nation’s coalition government is stabilizing after Prime Minister Enrico Letta won a confidence vote in parliament this week. Yields on the government’s debt fell 12 basis points this week to 4.3 percent and compare with a high this year of 4.9 percent in February.

The euro has strengthened 5.6 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 2.5 percent, while the yen tumbled 10 percent.

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