USD under pressure as shutdown arrives

Well if you were planning on visiting the statue of liberty or the Smithsonian museum then don’t because as we alluded to yesterday the first partial shutdown of US government in 17 years has arrived and predictably the USD has come under pressure in currency markets today. After trading weak in Asian hours, the dollar’s sell-off gathered pace in European trade with the index falling to 79.864, its lowest since February 13 and down 0.4 percent on the day. It was last trading at 80.056, still down 0.2 percent.

The weakness in the greenback lifted the single currency to an eight month high of 1.3589 before retreating back to 1.3550 level where it trades at the time of trading.Even though the failure of Congress to pass a budget closed the government and thereby setting the stage for a debate on the US debt ceiling within three weeks the markets have reacted fairly predictably and calmly.The dollar is weakened but consensus seems to show that traders expect a rapid snap back once the crisis is over provided it doesn’t linger on for too long.

Risk or general USD aversion saw the Swiss franc hit an 18 month high just above 0.8990 .Yesterdays flows at month end were a catalyst in prompting GBP to benefit from USD weakness and the yearly high of 1.6380 looks within reach should the doom n gloom regarding the greenback continue.Fresh direction will in my view be dependent on the release of PMI numbers over this week , previously upside surprises have characterized these moves but with GBP at elevated levels surely the risk is skewed to the downside?

For now the risk remains as to how long the current impasse lasts and what effect it has on economic growth and fed tapering …..A potentially bigger political battle looms over raising the U.S. government’s borrowing authority. Failure to do so by mid-October could result in a historic U.S. default.All in all its certainly best to avoid the greenback for the short term….

About Hetal Patel - Chief Editor, Europe

Hetal Patel has written 58 post in this blog.

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