Monday, 30 September 2013

Dollar Falls as U.S. Government Shutdown Looms; Yen Erases Gains

By John Detrixhe - Sep 30, 2013 10:24 PM GMT+0400
The dollar fell against the majority of its most-traded peers as political wrangling about the U.S. budget threatened a partial government shutdown tomorrow.
The U.S. currency pared declines as three economic reports showed business activity expanded more than forecast. The yen erased its rally versus the dollar even with Congress deadlocked and a decision on raising the debt ceiling needed within three weeks. The euro gained as Italian Prime Minister Enrico Letta’s deputy finance chief expressed confidence in preventing the government from collapsing. Norway’s krone declined against all except one of its 16 major counterparts.
U.S. Bureau of Engraving and Printing The U.S. currency extended its biggest weekly slide versus the yen in more than a month with Congress deadlocked over Republicans’ insistence on delaying the 2010 health-care law. Photographer: Andrew Harrer/Bloomberg
Sept. 30 (Bloomberg) -- Nick Beecroft, chairman of Saxo Capital Markets U.K. Ltd., talks about the outlook for the euro and dollar, and European Central Bank policy. He spoke Sept. 26 in London. (Source: Bloomberg)
“Markets are in the risk-off mode with the possible government shutdown in the U.S. and political uncertainty in Italy,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview. “The dollar has not been not playing the safe-haven role through this latest period I think because throughout the year the dollar tended to trade more positive with risk than negatively.”
The Bloomberg U.S. Dollar Index, which tracks the performance of a basket of 10 leading global currencies against the dollar, fell for a second trading-day, declining 0.1 percent to 1,012.16 at 2:19 p.m. New York time, after weakening as much as 0.2 percent.

Market Prices

The yen was little changed at 98.28 per dollar after touching 97.50, the strongest since Aug. 29. Japan’s currency fell 0.1 percent to 132.95 versus the euro after appreciating to 131.38, the strongest since Sept. 9. The euro was littl changed at $1.3528.
The New Zealand dollar has gained 7.7 percent versus the greenback this month, while yen fell 0.1 percent.
This quarter, the kiwi has led all major gainers with a 7.5 percent increase, while the worst-performing South African rand has slipped 1.9 percent. Denmark’s krone is the best-performing currency in 2013 and the rand has plunged 15.8 percent.
Brazil’s central bank increased its 2014 inflation forecast as a weaker currency undermines the world’s biggest interest rate increase. The real gained 1.6 percent to 2.2173 per dollar.

Budget Deadlock

The U.S. Congress has one day to end a stalemate that raises the risk of the first government shutdown in 17 years and threatens talks to increase the debt limit.
Failure to approve funding to keep the government open and to raise the debt ceiling would have a destabilizing effect on the economy, President Barack Obama said in a televised statement on Sept. 27. Closing the government would cut fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, according to economists from Moody’s Analytics Inc. to Economic Outlook Group LLC.
“There are so many uncertain factors ahead of us, it’s no wonder that risk is off,” said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “We are seeing the usual pattern with a stronger Swiss franc, yen, and if anything the dollar very much on the defensive.”
The MNI Chicago Report business barometer rose to 55.7 in September from 53 the prior month. Numbers greater than 50 signal expansion. The median forecast of economists surveyed by Bloomberg was 54.
The Dallas Fed’s manufacturing gauge jumped to 12.8, versus a Bloomberg poll’s projection of 5.5 and a reading in August of 5. The Institute for Supply Management’s Milwaukee index rose to 55, versus a forecast of 50 and an August reading of 48.2.

Italian Politics

Italy’s Letta said he will ask for a vote of confidence on Oct. 2, speaking on Rai 3 television. The Italian government has been torn apart by legal troubles facing former leader Silvio Berlusconi, whose criminal tax-fraud conviction subjects him to expulsion proceedings in parliament. Berlusconi allies have said they planned to quit the cabinet.
“We think he’ll survive the no confidence vote and keep the government going.” BNP Paribas’s Serebriakov said. “It’ll still be a weakened, but that’s our base case.”
Europe’s common currency slipped as much as 0.3 percent to 1.2214 per franc, the weakest since May 3, before trading at 1.2222. It has declined 0.6 percent since June 28, set for its first quarterly drop since December.
The yen strengthened before Japanese Prime Minister Shinzo Abe is due to outline his plans tomorrow for taxes and an economic-support package. Japan is set to raise its sales tax next year for the first time since 1997, and Abe may introduce a stimulus plan to offset the resulting drag on growth.

Japan Taxes

An increase in sales tax may spur yen gains unless balanced by measures to support growth, said Stan Shamu, a market strategist at IG Ltd. in Melbourne. “Talk of an urgent call for a corporate tax cut has been suddenly quashed,” he said.
The krone fell for a second day after a report from Norway’s statistics agency showed retail sales grew 0.2 percent in August, after dropping 1.3 percent the month before. The median prediction of six economists surveyed by Bloomberg was 0.9 percent.
The krone slipped 0.5 percent to 6.0167 per dollar.
Trading in over-the-counter foreign-exchange options totaled $15.8 billion, compared with $29 billion on Sept. 27, 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 $4.7 billion, the largest share of trades at 30 percent. Options on the dollar-yuan rate totaled $1.8 billion.
Dollar-yen options trading was 77 percent more than the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Dollar-yuan options trading was 119 percent more than average.
To contact the reporter on this story: John Detrixhe in New York at
To contact the editor responsible for this story: Dave Liedtka at