TOKYO/SYDNEY, Oct 3: The dollar rebounded against the yen but struggled close to an eight-month low against a basket of rivals on Thursday as the US government shutdown dragged on and positive developments in Italian politics helped lift the euro.
President Barack Obama met with Republican and Democratic leaders in Congress on Wednesday, but a solution seemed unlikely as both sides dug in for what could be a long stalemate.
The standoff comes a few weeks ahead of the next political battle to raise the federal government’s borrowing limit. Failure to do this could result in a worst-case scenario of an historic US debt default.
The common currency added 0.2 percent to $1.3610 after rising as high as $1.3623, a level not seen since early February, with its 2013 peak of $1.3711 set on Feb. 1 in sight.
The euro rallied after Italian Prime Minister Enrico Letta won a confidence vote in parliament as Silvio Berlusconi backtracked on threats to bring down the government.
Adding to the euro’s momentum, the European Central Bank reiterated it was ready to use any policy option to temper market interest rates, but did not flag immediate action.
‘Overall, we’re still seeing a broad risk-on dynamic in the FX market, while we try and wait and see what the developments are in regard to the US shutdown,’ said Sue Trinh, senior currency strategist at RBC in Hong Kong.
‘Risk-on tends to mean that US dollar and yen are the underperformers in that environment,’ she added.
The euro benefitted from the risk-on sentiment, particularly in light of the European developments.
JPMorgan analysts said there was nothing in ECB President Mario Draghi’s comments that suggested the bank was poised to aggressively ease and that declines in money market interest rates since the last ECB meeting have in part lessened the momentum for new measures. (agencies)
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