FOREX-Dollar tumbles with focus on economic costs of shutdown
* Investors focus on prospects for U.S. growth, Fed stimulus * U.S. House, Senate pass bill to avert debt default * Dollar pulls back from 3-week high against yen By Gertrude Chavez-Dreyfuss NEW YORK, Oct 17 (Reuters) - The dollar fell against the euro on Thursday to its lowest in more than eight months as the end of the U.S. debt stalemate shifted focus to the impact of the government shutdown and the likelihood that Federal Reserve stimulus will stay in place. Analysts said the two-week shutdown and acrimonious debate over raising the U.S. debt ceiling have knocked investors' and businesses' confidence, denting growth prospects for the world's largest economy. That would likely keep the Fed from withdrawing monetary stimulus at least until the beginning of next year. U.S. Treasury yields slipped and dragged the dollar down against major currencies, including the yen. "The dollar has traded very poorly on the back of the debt ceiling resolution," said Jens Nordvig, global head of currency strategy at Nomura in New York. "It is hard to know if it is about a delay in growth and (Fed) tapering, or whether investors are starting to demand a political risk premium on the dollar. In any case, we are not inclined to trade the dollar from bullish side at this point." The euro rose as high as $1.3681, the highest since early February and was last at $1.3667, up 1.0 percent on the day and its largest percentage gain in a month. The dollar index was down 0.8 percent at 79.696 after earlier falling to 79.613, its lowest since Feb. 7. Against the yen, the dollar lost 0.8 percent to trade at 97.92 yen, pulling back from a three-week high of 99.00 yen set much earlier in the global day. The dollar trough on Thursday against the yen was the lowest in a week and it was the largest percentage fall in a month. In the first wave of data to be released after the government returned to work, the Labor Department said the number of Americans filing new claims for unemployment benefits dropped from a six-month high last week. A separate report showed business activity in the mid-Atlantic region expanded this month but more slowly than in September.. The dollar lost momentum after rising initially in anticipation of an end to the fiscal impasse, falling to lows versus the yen after the U.S. House of Representatives approved a deal already passed by the Senate. The deal offers only a temporary fix and does not resolve the fundamental issues of spending and deficits that divide Republicans and Democrats. "We would expect this impasse to shave off part of fourth-quarter growth and hurt consumer confidence especially from the government sector," said Simon Derrick, head of currency strategy at BNY Mellon in London. The Fed's Beige Book report on Wednesday suggested confidence had been dampened somewhat by uncertainty caused by budget battles in Washington. Gold jumped 3 percent on Thursday on the belief the Fed will delay tapering. Adding to the dollar's woes was Chinese rating agency Dagong, which downgraded the United States to A- from A and maintained its negative outlook. Though not followed widely outside China, moves from other ratings agencies will concern investors. "While Dagong is often dismissed in the U.S., it should be given its due and its views should be respected," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange. "When the rating agency attached to the largest foreign holder of U.S. Treasuries downgrades U.S. debt for the second time in 3 years, Chinese authorities take notice." The dollar's broad losses saw growth-linked currencies including the Australian and New Zealand dollars surge to fresh multi-month highs. The Australian dollar rose past reported option barriers to hit a four-month high and last traded at US$0.9634, up 1 percent. The New Zealand dollar also gained, soaring to a five-month high and last changing hands at US$0.8502, up 0.8 percent on the day. Of the 36 most actively traded currencies against the dollar month to date, just four are lower, another 31 are higher against the dollar and one unchanged.
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