Dollar bounces from eight-month low; Obama, Congress look for way out

TOKYO Wed Oct 9, 2013 7:16pm EDT

1 of 9. A visitor walks past logos at the Tokyo Stock Exchange in Tokyo June 13, 2013.

Credit: Reuters/Toru Hanai

TOKYO (Reuters) - The dollar pulled further away from an eight-month low on Thursday on hopes of a break in the U.S. fiscal standoff, with President Barack Obama meeting Republican and Democrat lawmakers to discuss the government shutdown and raising the borrowing limit.

Asian shares were also expected to get some relief, while U.S. Standard & Poor's 500 E-mini futures added 0.3 percent, indicating a firmer open on Wall Street on Thursday after the S&P 500 index .SPX edged up 0.1 percent overnight.

House Democrats will journey to the White House later on Wednesday, and House Republican leaders will make the visit on Thursday as the search intensifies for a way to break the impasse that has worried markets and sparked warnings about the potential for economic havoc.

Some Republicans and Democrats also floated the possibility of a short-term increase in the debt limit to allow time for broader negotiations on the budget.

Financial markets have been optimistic that a deal between the two sides would be reached by the October 17 deadline to avoid an historic U.S. debt default.

But strains in short-term interest rates and funding markets increased as the date drew ever closer, keeping investors on edge.

"We think a resolution to the debt ceiling impasse in increasingly likely to be a last minute affair, and market anxiety seems likely to build up as we head into next week. We expect to see dollar/yen test lower in the days ahead," analysts at BNP Paribas wrote in a note.

The dollar held steady at 97.465 yen after gaining 0.5 percent in the previous session, its best one-day percentage rise in two weeks. It hit a five-week low against the Japanese currency on Tuesday.

The minutes of the Federal Reserve's September meeting revealing the decision not to reduce its $85 billion a month bond-buying program was a "close call" also helped buoy the U.S. currency.

"This is consistent with our expectations that the Fed will taper purchases at the upcoming December meeting. That said, the ongoing federal government shutdown and upcoming expiration of the debt ceiling suggests that the decision to taper could be pushed into 2014," Barclays Capital said in a note.

"A sooner resolution to the fiscal risks that cloud the outlook could keep December on the table, but a longer stalemate could dampen growth sufficiently and lead to a tapering in the first quarter of 2014 or later," it added.

Against a basket of major currencies, the dollar .DXY climbed further away from an eight-month low.

As the dollar regained some of its footing, gold dipped 0.1 percent to around $1,305.7 an ounce, adding to Wednesday's 0.9 percent decline.

U.S. crude prices eased 0.2 percent to about $101.5 a barrel, extending a 1.9 percent tumble in the previous session as the largest weekly buildup of U.S. stocks in a year weighed further on a market already concerned that Washington's budget standoff would curb demand in the world's biggest oil consumer.

(Editing by Shri Navaratnam)

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Comments (9)
LoveJoyOne wrote:
I think Obama’s proposition is fair and adult.

He proposes negotiations with no restrictions on the subjects to be discussed. These negotiations would be preceded by a short term increase in the debt ceiling and a short term CR regarding funding the government, so that the imminent threat of default and economic catastrophe would be pushed back and allow negotiations to proceed in good faith.

It’s like asking the hostage taker to lower the gun from the hostage’s head while negotiations begin. It’s a very reasonable request, coming from the President of the United States of America.

What is wrong with that proposition? The first thing a hostage negotiator tries to do is secure the safety of the hostage: the USA and the world economy in this case.

Or perhaps these zealots are hell-bent on destruction.

Oct 09, 2013 3:55am EDT  --  Report as abuse
Neurochuck wrote:
Can the creditors seize US government assets as surety if USA defaults on its bonds ?
China might like that George Washington nuclear aircraft carrier and fittings and training crew parked waiting for them to pick up in South Korea.
Not sure what the Japanese might choose – Hawaii would be nice for holidays.

Oct 09, 2013 4:28am EDT  --  Report as abuse
ExDemocrat wrote:
There is little “adult” about Mr. Obama’s fiscal policies. He has averaged about $1 trillion per year in annual fiscal deficits since coming to office. Spending has risen inexorably. He has gravely worsened the federal government’s mainly entitlement program-related unfunded liabilities situation (something on the order of $90 trillion)by forcing the nation to have Obamacare. He has ignored the recommendations of his own bipartisan commission that he formed to redress the federal government’s financial plight – the Simpson/Bowles Commission. Now he’s refusing to adopt any fiscal restraining measures by declining to deal with the Republican House of Representatives in conjunction with the debt limit. Obama is a very poor leader, and would be more suitable as head of state of a place with no pretensions about fiscal rectitude and discipline, like Argentina.

Oct 09, 2013 5:29am EDT  --  Report as abuse
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