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Dollar Climbs on Signs of Compromise in U.S. Debt Talks - (Bloomberg)

Posted by Chris Advincula on Oct 10, 2013 4:43:00 AM

The dollar climbed against the yen and the euro in the longest run of gains in a month on signs of a compromise among U.S. lawmakers that could avert an unprecedented default.

The Bloomberg U.S. Dollar Index reached a two-week high as congressional leaders were said to be open to a short-term increase in the nation’s debt limit. The yen slid versus most of its 16 major peers before Bank of Japan Governor Haruhiko Kuroda speaks today. Australia’s dollar weakened after data showed a smaller-than-forecast gain in employment.

“As soon as you start to see signs of an agreement being reached on the debt ceiling, I think you see dollar-yen fly back up to 99 pretty quickly,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company.

The greenback advanced 0.4 percent to 97.71 yen as of 8:52 a.m. in London, set for a three-day gain that would be the longest since Sept. 5. The last time it traded at 99 was Sept. 27. The dollar strengthened 0.2 percent to $1.3502 per euro, while the Japanese currency weakened 0.2 percent to 131.93 per euro.

The Bloomberg U.S. Dollar Index, which tracks the performance of the greenback against 10 major peers, rose 0.1 percent to 1,014.44. It earlier touched 1,015.74, the highest level since Sept. 27.

House Republican and Senate Democratic leaders are open to a short-term increase in the debt limit, said congressional aides of both parties who spoke on condition of anonymity. The movement comes after House Democrats met with President Barack Obama at the White House. A small group of House Republicans are scheduled to meet with the president today.

Compromise Hints

News of Obama meeting with leaders of both parties “highlights progress of sorts, with hints of compromise in the air,” Mitul Kotecha, the global head of foreign-exchange strategy at Credit Agricole SA (ACA) in Hong Kong, wrote in a note to clients. “It appears that the U.S. dollar is in a bottoming-out process at present, with short-term pain likely to give way to medium-term gain.”

The U.S. borrowing authority lapses on Oct. 17 as congressional Republicans seek spending cuts and changes to the nation’s 2010 health-care law.

Minutes of the Federal Reserve’s Sept. 17-18 meeting showed yesterday that most policy makers said the central bank was likely to reduce the pace of its $85 billion in monthly bond purchases this year. The gathering took place before the political deadlock over the budget and debt limit. 

Kuroda Speech

Obama yesterday nominated Fed Vice Chairman Janet Yellen to run the central bank to succeed Chairman Ben S. Bernanke, whose term ends Jan. 31.

The BOJ’s Kuroda is scheduled to speak today at the Council on Foreign Relations in New York. In April, he announced a plan to buy more than 7 trillion yen of Japanese government bonds per month to achieve 2 percent inflation in two years.

“Is Japan ever really going to go into any tightening cycle for monetary policy?” said Rochford’s Averill. “Dollar-yen is going to be a big buy.”

Japanese investors sold a net 2.23 trillion yen of overseas bonds in the week ended Oct. 4, the most on record dating back to April 2001, figures from the Ministry of Finance showed in Tokyo today.

Australia Jobs

The Australian dollar lost 0.2 percent to 94.27 U.S. cents after earlier rising as much as 0.3 percent. New Zealand’s kiwi dollar sank 0.7 percent to 82.43 U.S. cents.

Australian employers added 9,100 jobs in September, government figures showed today, fewer than the 15,000 gain estimated by economists surveyed by Bloomberg News.

The unemployment rate dropped to 5.6 percent last month from a four-year high of 5.8 percent in August. Analysts had forecast the figure would be unchanged. The participation rate slipped to 64.9 percent from 65 percent.

“Full-time jobs growth is only moderate at best and the participation rate declined,” said Jonathan Cavenagh, a currency strategist at Westpac Banking Corp. (WBC) in Singapore. “That tempers my bullishness on the Aussie.”

European Central Bank President Mario Draghi is due to speak in New York today after yesterday saying that many U.S. commentators “mistook the euro for fixed exchange-rate regime, when in fact it is an irreversible single currency


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