Dollar Falls to 8-Month Low Versus Euro on Shutdown; Krona Rises

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

The greenback fell for a second day against the euro as Congressional leaders and President Barack Obama failed to make any headway on the U.S. fiscal impasse. Lawmakers also need to agree on raising the debt limit to avoid a default after Oct. 17. The euro rose after a report showed services output in the region expanded more than initially estimated last month. The krona climbed following a report that showed Sweden’s services industries expanded for a third month in September.

“This is more or less the perfect environment for euro-dollar to overshoot,” said Kasper Kirkegaard, a senior strategist at Danske Bank A/S in Copenhagen. “One of the key drivers is, of course, the shutdown, but more importantly the debt-ceiling deadline is approaching.”

The dollar declined 0.2 percent to $1.3604 per euro at 7:30 a.m. New York time after reaching $1.3623, the weakest since Feb. 4. The greenback advanced 0.3 percent to 97.69 yen after dropping 0.9 percent over the previous two days. Japan’s currency retreated 0.5 percent to 132.90 per euro.

The dollar may weaken to about $1.40 per euro, before recovering to trade at a stronger rate than current levels in the first quarter as the Fed begins its tapering and U.S. money-market rates rise, Kirkegaard said. Economists’ predictions compiled by Bloomberg show the greenback will trade at $1.31 by year-end and strengthen to $1.28 by the end of June.

No Breakthrough

Benchmark 10-year Treasury yields were at 2.64 percent, after reaching a seven-week low of 2.59 percent on Sept. 30.

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 U.S. dollar continues to be the loser from the Washington standoff,” National Australia Bank Ltd. analysts led by Peter Jolly wrote in an e-mailed note to clients. In addition to concern that the shutdown will be a drag on growth, “fears are also mounting that the ongoing standoff will jeopardize any resolution to the separate debt-ceiling issue.”

Fed Deliberations

The Bloomberg U.S. Dollar Index, which tracks the performance of the greenback against 10 leading global currencies, was little changed at 1,008.78 after falling to 1,007.22, the lowest level since Sept. 19.

Initial claims for unemployment benefits rose last week and non-manufacturing output growth slowed in September, according to separate surveys of economists by Bloomberg News. The U.S. Labor Department won’t release its monthly payrolls report tomorrow if the government remains closed, according to the Bureau of Labor Statistics.

The dollar has fallen 0.6 percent in the past week, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The yen strengthened 0.9 percent and the euro gained 0.4 percent.

Yen Weakens

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.

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.

The krona rose as Stockholm-based Swedbank AB published an index based on responses from purchasing managers in the services industry that was at 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 Swedish currency climbed 0.6 percent to 6.3449 against the dollar and was 0.4 percent stronger at 8.6298 per euro.

South Africa’s rand weakened against the dollar on concern the partial U.S. government shutdown will hamper global growth and as a strike in South Africa’s car industry deters investment.

South African plants belonging to carmakers including Bayerische Motoren Werke AG, Toyota Motor Corp., and Volkswagen AG were shut for three weeks in August and September after workers went on strike to demand higher pay.

The rand depreciated 0.6 percent to 10.0734 per dollar.

Before it's here, it's on the Bloomberg Terminal.