CURRENCIES: Dollar Pares Loss But Remains At Mid-February Low
By Saumya Vaishampayan and Carla Mozee, MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar slipped against other major currencies on Tuesday as a partial shutdown of
the U.S. government went into effect.
The ICE dollar index (DXY), a gauge of the greenback against six rivals, edged down to 80.116 from 80.237 late Monday.
That marked its lowest level since Feb. 13's close of 80.09, according to FactSet. The dollar index has hovered near
mid-February lows since mid-September.
The WSJ Dollar Index , which measures the greenback against a broader basket of rivals, fell to 72.52 from 72.69.
"There hasn't been much follow through in dollar selling in the U.S. session," said Robert Lynch, a currency
strategist at HSBC. The ICE index was up from its intraday low of 79.86. "At some level, the latest development in this
latest fiscal showdown in Washington isn't hugely surprising to financial markets," he said, adding that the market
reaction has been "relatively benign."
U.S. stocks rose and U.S. Treasurys fell, both indicating an uptick in risk appetite.
U.S. manufacturing activity surged in September, with the Institute for Supply Management's purchasing managers index
rising to a more than two-year high of 56.2% from 55.7% in August. The print topped expectations of 55% from a
The ISM data lent some support to the dollar, said Steven Englander, global head of G10 foreign-exchange strategy at
Citi. "Right now, the risk-positive aspect is the view that it's going to be a short shutdown and the [Federal Reserve],
out of an excess of caution, is going to delay tapering," said Englander.
The Fed currently buys $85 billion in mortgage and Treasury debt each month and its next monetary-policy meeting is
scheduled to begin on Oct. 29. Fed officials have said they examine labor-market data in deciding when to slow those
purchases. But a continuation of the shutdown would prevent the release of the September jobs report. Many economists
expect no policy change at the Fed's October meeting.
The British pound (GBPUSD) gained to $1.6205 from $1.6185 late Monday, while the euro (EURUSD) inched higher to $
1.3531 from $1.3524.
The shutdown in Washington is the first since 1996, and is the result of the lack of a spending bill for the just-
started fiscal year. The budget impasse stemmed from a deep divide over President Barack Obama's landmark health-care
law, with Republicans trying multiple times to delay the measure. Republicans and Democrats didn't show signs of
wavering on Tuesday.
Washington still needs to deal with another issue -- raising the U.S. debt ceiling. U.S. Treasury Secretary Jacob Lew
has said that emergency steps to keep the government from hitting the debt ceiling will run out on Oct. 17. House
Republicans have said they will use the debt-ceiling debate to attack the health-care law.
Against the Japanese yen, the dollar (USDJPY) fell to Yen97.82 from Yen98.26 late Monday. Japanese Prime Minister
Shinzo Abe announced an increase in the national sales tax to 8% from 5% on Tuesday that would be accompanied by a
stimulus package of about Yen5 trillion.
The sales tax should take about Yen7.5 trillion out of consumption and investors were expecting stimulus of up to Yen6
trillion to offset the tax, said Citi's Englander. "It was all very vague, and that I think was a disappointment," he
The dollar edged lower on Monday in anticipation of a closure of the U.S. government. The ICE dollar index also
wrapped up the third quarter by notching a 3.5% loss during the period, the biggest quarterly decline since the quarter
ended March 31, 2011, according to FactSet.
The Australian dollar gained against the greenback on Tuesday following a decision by the Reserve Bank of Australia to
keep its key interest rate unchanged at 2.5%. The Aussie (AUDUSD) edged up to 93.96 U.S. cents from 93.26 U.S. cents
late Monday. It bought roughly 93.17 U.S. cents ahead of the central bank's announcement. The bank, led by Governor
Glenn Stevens, indicated in a statement that further interest rate cuts appear unlikely. The full effects of easing in
monetary policy since late 2011 "are still coming through, and will be for a while yet," the RBA said.
While the central bank "is in favor of additional accommodation, it believes further support will yet emerge from its
prior efforts and doesn't see a need for new measures," wrote DailyFX currency strategist Ilya Spivak to clients. "We
remain long AUD/USD."
The European Central Bank will meet on Wednesday, with economists expecting no change in monetary policy . But the
market will likely focus on a potential introduction of another round of long-term refinancing operations, which have
been mentioned by ECB officials as a way to apply pressure on short-term rates.
Euro-zone data Tuesday showed a third straight monthly decline in the economic region's unemployment in August and a
slight decline in September factory growth across the board.
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
Copyright (c) 2013 Dow Jones & Company, Inc.