Bloomberg- The dollar is ending its best quarter in a year on a sour note as a US government shutdown threatens to muddy the outlook for interest rates and economic growth.
- The Bloomberg Dollar Spot Index slumped as much as 0.5%, before trading little changed in the afternoon; the gauge is up 2.7% since the end of June, the most since the third quarter of 2022
- A shutdown will happen unless Congress enacts a temporary spending bill before the new fiscal year starts on Oct. 1; the closure could slow data releases that markets and policymakers are looking to for a gauge on the health of the US economy
- The dollar index still has room to rise 2% to 3% by the end of the year as the shutdown won’t last that long, according to Helen Given, an FX spot trader at Monex USA
- “I’d put USD long definitely versus euro and pound, those two central banks are likely to cut rates before the Fed does,” she said by phone. “We’re looking at rate cuts out of the Eurozone and UK probably July of next year. So I’d take dollars through end of 2024 over those two”
- The Federal Reserve’s preferred measure of underlying inflation rose at the slowest monthly pace since late 2020, data showed Friday, helping lay the groundwork for policymakers to forgo an interest-rate hike at their next meeting
- EUR/USD rose as much as 0.5% to 1.0617 before trading little changed; the common currency remains down 0.8% on the week, its 11th-straight weekly decline, and poised for its worst monthly performance since May
- The pair is set to fall to 1.02 by year-end with potential “to reach parity if energy prices continue to climb,” wrote Jordan Rochester, an FX strategist at Nomura
- Euro-area core inflation eased to its slowest pace in a year
- USD/JPY added 0.1% to 149.42, after earlier dropping as much as 0.5%
- Bank of Japan announced an unscheduled bond-purchase operation after yields on long and super-long debt surged to decade highs
- “There is a point where the weakness of the yen makes things a lot worse for the domestic economy, for the growth outlook,” Jane Foley, a senior foreign-exchange strategist at Rabobank, told Bloomberg TV. “We’re hitting that point where politically it’s going to be quite difficult for the Bank of Japan to keep on defending its policies at this point”
- GBP/USD is headed for its worst month in a year but was little changed Friday
- GBP is the worst performer among Group-of-10 peers this quarter, weakening nearly 4% against the greenback
- NZD/USD climbed 0.5% to 0.5993, outperforming all of its G-10 counterparts
Reporting By Anya Andrianova and Vassilis Karamanis
