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FOREX-Dollar slips on U.S political gridlock, ECB in focus
October 2, 2013 / 8:22 AM / 4 years ago

FOREX-Dollar slips on U.S political gridlock, ECB in focus

* Dollar under pressure given US political deadlock

* Euro moves dictated by ECB meeting, Italy confidence vote

* Eyes on ECB as investors expect LTRO later this year

* ECB decision at 1145 GMT, press conference at 1230 GMT

By Anooja Debnath

LONDON, Oct 2 (Reuters) - Concerns over a U.S. government shutdown saw the dollar slip to a one month low against the yen on Wednesday, while expectations for a European Central Bank meeting and Italian government confidence vote kept the euro under pressure.

Traders said markets could be in for a volatile session with no sign of an end to Washington’s political deadlock, although most investors still expect the situation to be short-lived.

The yen, which tends to benefit in times of market uncertainty, rose against the dollar. The greenback slipped 0.6 percent to touch 97.305 yen, its lowest since late August.

The euro was down 0.1 percent at $1.3515. It had hit an eight month high of $1.3589 in the previous session.

The single currency found some support on prospects that Italian Prime Minister Enrico Letta may survive a confidence vote expected later on Wednesday, potentially putting an end to the country’s latest bout of political turmoil.

The European Central Bank’s policy meeting on Wednesday will be eyed for signs the bank, as some analysts expect, will move to pump more ultra-cheap funds into the bond market, possibly by the year-end. Few expect it this week.

“There is a small negative risk to the downside for the euro as the ECB is likely to sound quite dovish in its press conference, although we don’t expect much in terms of policy action today,” said Adam Cole, global head of FX strategy at RBC Capital Markets.

“Italian political concerns seem to be blowing over already... assuming the government survives today this mini political crisis appears to be mostly over.”

Interest and deposit rates are expected to remain unchanged in a decision at 1145 GMT. ECB President Mario Draghi’s press conference is at 1230 GMT.

BUMPS

The dollar index, was down 0.1 percent at 80.142. It had fallen to a near eight-month low of 79.864 on Tuesday on concerns about the shutdown.

Many market players see a bumpy road ahead for the dollar, as talks between congressional Republicans and President Barack Obama over the budget and a rise in the public debt ceiling are expected to difficult and possibly prolonged.

“Because of the shutdown, the government is spending less and it may not run out of money by Oct 17. So this issue could possibly drag on for nearly a month. I expect the dollar to stay under pressure,” said Minori Uchida, chief currency strategist at the Bank of Tokyo-Mitsubishi UFJ.

The government shutdown is complicating the picture for markets as it has disrupted the release of economic data at a time when markets are looking for clues to when the Federal Reserve will scale back its stimulus.

The U.S. Bureau of Labour Statistics, which was scheduled to publish the closely watched non-farm payrolls report on Friday, said it would not issue anything until government operations resumed.

That puts renewed focus on the ADP national employment data releasing at 1215 GMT.

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