Reuters logo
FOREX-Dollar down as deadlock on US debt deal weighs, yen rises
October 14, 2013 / 7:57 PM / 4 years ago

FOREX-Dollar down as deadlock on US debt deal weighs, yen rises

* Signs of progress on U.S. fiscal talks, but no deal yet
    * Yen climbs as safe-haven status revived
    * But investors still believe U.S won't default on its debt

    By Gertrude Chavez-Dreyfuss
    NEW YORK, Oct 14 (Reuters) - The dollar slipped on Monday
and the yen gained on safe-haven demand, as U.S. lawmakers
struggled to reach a deal before this week's debt ceiling
deadline, stoking concerns the United States may actually
default on its debt obligations.  
    While negotiations in the U.S. Senate to bring the fiscal
crisis to an end showed signs of progress on Sunday, failure to
break the stalemate before Thursday, the deadline to raise the
debt ceiling, would leave the world's biggest economy unable to
pay its bills in the coming weeks. 
    "The seemingly once-dismissed threat of a U.S. default is
very much alive," said Christopher Vecchio, currency analyst, at
FXCM-owned in New York. "The re-introduced tension
has the Japanese yen reviving its role as safe-haven du jour,"
hurting the dollar as well.
    In late trading, the dollar was down 0.1 percent against a
basket of currencies at 80.289.
     The dollar slipped 0.1 percent versus the yen to 98.44 yen
, having touched a low of about 98.05 yen earlier. The
dollar retreated from a near two-week high of 98.60 yen set on
    The yen's liquidity makes it a relatively safe option during
times of uncertainty. Traders said bids for the U.S. dollar at
levels near 98.00 yen helped to limit the yen's rise. 
    The dollar was down 0.3 percent against the Swiss franc 
 at 0.9099 franc, while the euro was up 0.2 percent
at $1.3569. 
    Investors may be wary of betting too heavily in one
direction, given the possibility of a last-minute deal which
could make the dollar rally, analysts said.
    With currencies trading in tight ranges, volatility has
taken a hit. One-month euro/dollar volatility slipped on Monday,
near lows last seen in mid-September when the Federal Reserve
surprised markets by refraining from trimming its stimulus,
pushing vols to a six-year trough.
    Many in the market, however, expect the political gridlock
to end just before the Oct. 17 deadline.
    "Investors..don't believe that the U.S. government will
allow for its first ever default and this assumption is helping
the markets maintain a level of stability," said Kathy Lien,
managing director at BK Asset Management in New York.
    "However, the risk premium is high and for this reason, we
don't expect any new positioning or breakout trends until the
uncertainty is lifted."
    Market holidays in Japan and partial market closure in the
United States on Monday added to the subdued mood. Trading in
euro/dollar was the lowest since April 1, using
Reuters Dealing data, and May 6 for dollar/yen. 
    Economists said fiscal worries would support the Fed's
decision to maintain its stimulus, or quantitaive easing.
    But Lena Komileva, managing director at G+Economics in
London, said quantitative easing is no cure for political risk
or government paralysis and job losses. 
    "The longer QE continues the greater the markets' dependency
becomes and...the greater the risk of market...volatility when
the Fed launches tapering eventually."

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below