The dollar sank to its lowest level in eight weeks against the yen amid concern U.S. lawmakers will fail to reach an agreement to raise the federal debt ceiling and keep the nation from defaulting.
Switzerland’s franc gained versus the greenback after Treasury Secretary Jacob J. Lew said yesterday Congress must boost the debt limit by Oct. 17 or the U.S. may be unable to pay its bills. The partial government shutdown persisted for a seventh day. The euro rose versus the dollar even as confidence in the 17-nation region waned. India’s rupee slid as the central bank made its second interest-rate cut in a month.
“Dollar-yen is basically the only game in town,” Brad Bechtel, a managing director at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “The government shutdown and debt-limit issues are keeping players on the sidelines. People are using dollar-yen as the primary hedge vehicle to express any risk associated with that.”
The dollar lost 0.8 percent to 96.71 yen at 5 p.m. New York time and touched 96.67 yen, its weakest level since Aug. 12. The Japanese currency added 0.6 percent to 131.32 per euro. The franc appreciated 0.5 percent to 90.29 centimes per dollar, and the euro rose 0.2 percent to $1.3581.
The yen strengthened beyond its 200-day moving average versus the greenback for the first time since November. The technical indicator, which some currency traders see as a potential turning point, was at 96.68. The yen tends to gain during periods of financial and economic turmoil because Japan isn’t reliant on foreign capital to fund its deficits.
Stocks fell, with the Standard & Poor’s 500 Index declining 0.9 percent.
Currency swings as measured by the JPMorgan Global Volatility Index fell to as low as 8.76 on Oct. 4, the least since May 9. It was 8.79 today, versus a 2013 average of 9.38.
The Indian rupee declined versus all of its 31 most-traded counterparts as the Reserve Bank of India cut an interest rate, taking advantage of a recent climb in the rupee to ease a cash squeeze imposed to support the currency. It slid 0.6 percent to 61.7950 per dollar after falling 0.8 percent, the most on an intraday basis since Sept. 20, to 61.9550.
Sterling gained versus most of its major peers after a report showed optimism in the U.K.’s financial industry reached a 17-year high in the third quarter, underlining the strength of the British economy. Sterling rose 0.5 percent to $1.6097 after increasing as much as 0.6 percent, the most since Sept. 27.
The dollar will resume its advance after an accord on the debt ceiling is reached, gaining to 100 yen to 105 yen by year-end, said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. Analysts surveyed by Bloomberg estimated 103 yen at year-end and 105 by the end of the first quarter.
“There were some expectations that Washington would get a bit closer to a deal over the weekend, and markets may be disappointed more progress wasn’t made,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a phone interview. “This is weakening the dollar amid risk aversion.”
President Barack Obama reiterated today he won’t negotiate with Republicans “under the threat of economic catastrophe.” He spoke during a visit to the Federal Emergency Management Agency in Washington. Lew said yesterday on CNN that “Congress is playing with fire” and renewed his call for extending the $16.7 trillion debt limit.
House Speaker John Boehner said yesterday on ABC the nation may be headed for default if Obama won’t negotiate. The House can’t pass an increase to the debt ceiling without packaging it with other provisions, he said.
The dollar fell 2.7 percent in the past month, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen declined 0.2 percent, while the franc rose 1.4 percent and the euro gained 0.6 percent. The pound advanced 0.5 percent.
The most accurate foreign-exchange forecaster in the past quarter predicts the U.S. currency will rebound against the euro and pound. Hendrix Vachon, an economist and currency strategist at Desjardins Group, a Canadian credit union, foresees a quick resolution to the congressional standoff that will help the greenback rally, as U.S. growth outpaces Europe.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, fell 0.2 percent to 1,008.13, the sixth decline in seven days.
Europe’s common currency traded at almost its strongest level since February against the dollar. It reached that level, $1.3646, on Oct. 3.
An index measuring investor confidence in the euro region fell to 6.1 this month from 6.5 in September, the Limburg, Germany-based Sentix research institute said in an e-mailed statement. Economists in a Bloomberg News survey had predicted an increase to 8.5.
Trading in over-the-counter foreign-exchange options totaled $20 billion, from $23 billion on Oct. 4, 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 $4.9 billion, the largest share of trades at 24 percent. Options on euro-dollar rate totaled $2.9 billion, or 14 percent.
Dollar-yen options trading was 52 percent more than the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 98 percent above average.