Dollar Slips as Fed Worries Continue
Treasury Yields Fall as Investors Focus on Effects of Government Shutdown
Expectations that the Federal Reserve will have to keep its easy-money policies in place for longer following the partial U.S. government shutdown pushed the dollar close to its lowest point of the year against the euro and U.S. Treasury debt prices to their highest point since July.
Yields on the 10-year Treasury note, which move inversely to prices, touched 2.538%, the lowest level since July 24, according to CQG. The dollar continued its slide against major rivals, including the yen and pound. The pound traded just above the $1.62 level for the first time in two weeks. The greenback fetched ¥97.75 from ¥97.93 late Thursday. The euro lost early gains versus the dollar, buying $1.3672 from $1.3676.
The drop in the dollar and the rise in Treasury debt prices were set in train earlier this week after lawmakers reached a temporary solution to raise the so-called debt ceiling, showing that investors doubt the Fed can start to reel in its stimulus measures—a process dubbed tapering—for as long as economic performance and data is compromised by the now-ended shutdown, and as long as the risk of repeat shutdowns lingers.
“As policy remains uber accommodative, the dollar has adjusted downwards,” said Scott Jamieson, head of multi-asset investing at Kames Capital in London, with $24 billion under management.
As U.S. averts default, Japan and China brace for next dollar drama
HONG KONG/TOKYO (Reuters) – Deal or no deal, the U.S. Congress’ dance with default impressed policymakers and investors in China and Japan with just how vulnerable their own economic revival plans are to the next political tantrum on Capitol Hill.
The 11th-hour agreement on Wednesday between Congressional Republicans and Democrats to raise the limit on U.S. government borrowing and end a 16-day government shutdown also averted a default on U.S. Treasury bonds that had threatened the global economy and financial system.
But Congress gets another chance to hold U.S. creditworthiness hostage early next year ahead of a new February 7 deadline to approve a debt ceiling increase.
“We’re glad a deal has been struck,” said a Japanese policymaker, who spoke on condition of anonymity. “But the uncertainty will remain and it will be the same thing all over again early next year.”
CNBC’s Jim Cramer said the U.S. is “a laughing stock around the world, maybe worse than Italy in some ways when I look at benchmarks. We have obviously lost the faith of a lot of countries.”
“If there was a way to be able to take your money out of this country and put it in Germany … if I were Brazil, if I were Japan I would do it immediately,” he said Thursday on “Squawk Box.”
He went on to say that the slumping dollar index, which measures the greenback’s value against a basket of currencies, reflects the current sentiment of investors around the world. They are saying “lets go into gold, lets get out this dollar … lets not be in bonds in the United States, we’d rather be in any other currency because they basically have lost control,” he said.
“There is a notion that there’s a party dissolution, there’s no coming together. … This is a good opportunity—between now and the next wrangle—where you can find a safe haven. Whether it be gold, whether it be the euro, or whether it be, frankly, the Chinese currency,” he said.
Jeffery Gundlach – America’s credibility is eroding
Jeffrey Gundlach, CEO and Founder of DoubleLine, weighs in on the credit markets as the dollar index is “pushed to a new low.”
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“Whatever influence, if any, I have in Washington, I will try to make sure they understand this is extremely damaging to the economy. I think the fourth-quarter results will come in negative. This is as a result of the behavior of Washington.