Dragged down by European names, the currency index hit a two-week low in afternoon trading, but pared losses by the end of the session. The Philippine peso was also among the worst performers after a surprise interest-ratecut. Meanwhile, the Colombia peso led gains, followed by the Chinese offshore yuan as some Asian markets resume activities after a holiday.
The US government shutdown is leading to uncertainty over the state of the world’s largest economy, but weakness in the yen and the euro is also helping push the dollar to its highest in two months. Political risks in Japan and France have prompted a broad repositioning. Hedge funds were first to close short-dollar exposure, with real-money accounts now following, according to Europe-based traders.
“EM is faring better than their non-dollar DM peers so far,” said Ning Sun, a senior emerging-markets strategist at State Street Global Markets in Boston. “Perhaps investors are looking to pare back some risky positions.” Middle Eastern sovereign bonds jumped, with the dollar debt of Israel, Jordan and Egypt up following a breakthrough in negotiations toward ending a two-year war between Israel and Hamas. The Tel Aviv stock exchange 35 index rose more than 2% and the shekel appreciated.
“We must give the dollar credit for a political victory in which Hamas and Israel want to lay down their weapons,” said Juan Perez, senior director of trading at Monex USA. “Although the government remains closed, people are convinced that they must continue to have faith in technology, something that again helps the dollar.”
Traders were also weighing mixed signals from Federal Reserve officials. While Governor Michael Barr called for a cautious approach toward further rate cuts, Fed Bank of New York President John Williams backed additional easing, telling the New York Times he’s closely watching the jobs market.
