The dollar retreated from a three-week high versus the yen after encountering so-called technical resistance and as the short-term debt deal passed by U.S. Congress failed to end political uncertainty.
The yen rose versus its major peers as President Barack Obama signed into law a measure ending a U.S. government shutdown and extending its borrowing authority until early 2014. The greenback remained lower against higher-yielding currencies such as New Zealand’s with markets gauging the impact of the recent impasse on prospects for growth and Federal Reserve stimulus. Policy makers including Fed Bank of New York President William Dudley speak today.
“People were primed for a move from Congress today to lift the debt ceiling,” said Desmond Chua, a Singapore-based market analyst at CMC Markets. “Looking forward, it leaves us a short time before another possible debacle. The 99 round handle for dollar-yen is a tough one to overcome, looking at how it’s been facing that resistance since the end of September.”
The dollar lost 0.3 percent to 98.49 yen as of 7:18 a.m. in London after touching 99.01, the most since Sept. 27. It fell 0.2 percent to $1.3557 per euro. Europe’s common currency slipped 0.1 percent to 133.54 yen after earlier reaching 133.84, the strongest level since Sept. 26.
The dollar will face resistance in the 98.65 to 99.15 yen area, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote in a note dated yesterday.
“This area should be a tough hurdle for the short-term setup,” he wrote. “Still, corrective retracements look like buying opportunities.”
The Senate voted 81-18 to halt the 16-day shutdown and raise the borrowing limit. The House of Representatives voted 285-144 to clear the measure. The framework negotiated by Senate Majority Leader Harry Reid, a Democrat, and Minority Leader Mitch McConnell, a Republican, would fund the government through Jan. 15, 2014, and suspend the debt limit until Feb. 7.
Uncertainty resulting from continued political disruption has a “silver lining,” because it means a slower pace of stimulus tapering by the Fed, according to Russ Koesterich, the chief investment strategist for BlackRock Inc.
Weakened consumer confidence may cause “more of a drag” on fourth-quarter growth than expected, he said in a Bloomberg Television interview.
The dollar has dropped 0.7 percent in the past month, according to Bloomberg Correlation Weighted Indexes, which track 10 developed-country currencies. The euro gained 0.9 percent, while the yen is little changed.
The Fed Bank of Philadelphia’s general economic index probably fell to 15 in October from 22.3 the previous month, a report today is forecast to show, according to the median in a Bloomberg News survey. Readings greater than zero signal growth. The Empire State index for the New York region sank to 1.5 this month, a five-month low, an Oct. 15 report showed.
“The Philadelphia Fed is likely to echo the weakness in the Empire survey earlier this week, which was presumably driven in part by concerns about the government shutdown,” BNP Paribas SA currency strategists Vassili Serebriakov and Daniel Katzive in New York wrote in a note to clients.
Reports delayed by the shutdown, including the September payrolls data, will begin to be released in coming days and markets may start to rebuild positions betting on dollar gains versus the yen, pound and euro, the BNP strategists wrote.
The Bloomberg U.S. Dollar Index, which tracks the U.S. currency against 10 other major currencies, fell 0.2 percent to 1,009.62, weakening for a second day. The Australian dollar has been the biggest gainer versus the greenback in October, rising 2.4 percent, followed by the Mexican peso’s 2.1 percent advance and the South African rand’s 1.7 percent climb.
“In the short term, the clearest trend would be carry does a little bit better in the currency space,” Richard Yetsenga, the head of global markets research in Sydney at Australia & New Zealand Banking Group Ltd., said in a Bloomberg Television interview. “Certainly that seems to be the easiest way to explain recent price action.”
In carry trades investors borrow cheaply in countries with low interest rates, and use the proceeds to buy currencies of economies with higher-yielding assets. Fed tapering is likely to happen no sooner than February, Yetsenga said.
Demand for the Aussie was also supported before a report tomorrow forecast to show China’s economy grew 7.8 percent in the third quarter from a year earlier, from a 7.5 percent pace in the previous three months, according to the median estimate in a Bloomberg survey. China is Australia’s largest trading partner.
New Zealand’s currency was little changed at 84.26 U.S. cents following a 0.5 percent advance yesterday. The Aussie dollar rose as high as 95.69 U.S. cents, the most since June 18, before trading at 95.41 cents, down 0.1 percent from yesterday.