Wherever you look in the currency markets the dollar is once again on the defensive as the economic drag from the government shutdown threatens to reduce fourth quarter GDP and makes it ever more likely that the Fed will continue its $85 billion a month quantitative easing program well into the New Year.
It is estimated that the United States could lose $300 million a day in economic activity due to the partial Federal closure, according to IHS Inc.
The euro reached 1.3607 in early New York trading today, the highest it has been against the dollar in eight months, and except for two days in February the euro has not been at these levels in almost two years (11/18/2011).
The yen has gained 3.3% against the greenback since the middle of last month, despite Japanese government policy for a weaker yen. The British Pound is up 7.5% since August, 2.1% since mid-September and is trading at its best level versus the dollar in ten months.
The emerging markets currencies that were hit hard when the Fed began to consider ending quantitative easing have recovered almost half their losses. From late May until Mid -August the Brazilian Real lost 19% against the dollar, 10% of that has now been regained.
In the same period the Indian Rupee declined 24% against the dollar and since late August has restored 9%.
The biggest surge in emerging market currencies came on June 18th when the Fed surprised the markets and decided not to begin reducing the size of its quantitative easing program.
Chief Market Strategist