Dollar hit by US shutdown fears

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19 Jan, 2018

Dollar hit by US shutdown fears

The dollar was hovering close to three-year lows on Friday as legislation to stave off an imminent US Government shutdown was met with some roadblocks in the Senate late on Thursday.

The news comes despite the passage of a month-long funding bill that was presented by the House of Representatives just hours earlier.

The Reuters reports states that scores of federal agencies could be forced to shut starting at midnight on Friday if no new injection of money is put in, no matter how temporary that may be.

As a result, the dollar index - which measures the greenback’s value against other major currencies - fell 0.3% at 90.230. Since the beginning of 2018, the dollar has already lost 2% and this latest news sent the dollar index - which measures the greenback’s value against other major currencies - down a further 0.3 percent at 90.230.

“The fear of the U.S. government shutdown has made investors nervous,” said Naeem Aslam, chief market analyst at Think Markets UK. “There is a strong possibility that the U.S. government shutdown may become a reality.”

Meanwhile, a weak dollar has increased US exports and boosted foreign earnings of US corporations. US 10-year Treasury yields hit their highest level in more than three years at 2.642% on Friday.

“It’s a continuation of the trend and expectations for a normalization of monetary policy,” said Chris Scicluna, head of economic research at Daiwa Capital Markets, referring to rising US bond yields.

As reported on the Financial Times, chief market strategist for the UK and Europe at JPMorgan Asset Management, Karen Ward said: “In large part, the dollar’s decline reflects the markets’ perception that Europe is catching up with the US; that as the recovery gathers pace, the European Central Bank will be able to follow the Federal Reserve and start normalising policy.

“But while the recovery is accelerating in the eurozone that doesn’t mean the ECB is on course to shift from accelerator to brake. There is little sign inflation is picking up. The most recent comments from the ECB recognise this. Expect more dovish comments from them in the coming weeks”.

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