US Dollar hits an eight-month low as the debt ceiling countdown starts
Not only the Congress hasn't solved the US government shutdown impasse but now market fears the upcoming debt ceiling talks that must be complete by mid October.
The USD traded lower on Thursday amid those concerns and weaker than expected economic data.
As the US government shutdown entered a third day Wall Street declined hard and the US Dollar index performed its fifth negative day in row to hit 8-month lows around 79.70.
The EUR/USD rallied to the highest level since February 4 at 1.3645 and now the pair is closing in consolidation mode at 1.3615. "The hourly chart shows price held above 20 SMA that continues grinding higher, while indicators stand in positive territory," FXstreet.com's Valeria Bednarik commented in a recent report. "Main bullish target continues to be 1.3710, this year high, while 1.3570/80 area will likely attract buyers if reached, halting attempts to break lower."
GBP/USD logged loses for the first time in the last 5 sessions after declining from the 1.6250 to close below the 1.5200 area at 1.6150. The Sterling failed to break above the 1.6260/1.63 on Thursday, the same area it failed in April and September 2012 and April 2013.
This time, "a break below 1.6160 will complete a double top, which can suggest at least some short-term consolidation, possibly a bearish correction, A double top "can suggest at least some short-term consolidation, possibly a bearish correction."
The USD/JPY traded lower for third day and touched sub 97.00 levels at 96.90. However the pair managed to recover and currently it is trading at 97.25. "The bearish tone prevails, and the hourly chart suggest more slides for current session, as indicators head south after correcting oversold readings," affirms Bednarik. "The daily chart shows 200 SMA around 96.50 acting as strong dynamic support, as price has held above it since late November last year."
Gold is trading at 1,317, almost flat on the day. The metal remains pretty shallow as it barely stands above $1,300/oz. Despite the run, risk remains to the downside as long as $1,342 caps the upside."
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The Aussie began the week in a strong position yesterday, pushing above 0.9445, but as Asian equity markets began the week lower, the higher yielding asset failed to reach the 0.9450 level and eventually traded lower on the back of general risk aversion among investors. AiG construction index improved to 47.6 which initially had us trending higher but a cut by the World Bank on their outlook for Chinese GDP saw us reverse previous gains as we slipped to an eventual low near 0.9390. With investors continuing to lose confidence in the chance of an early resolution to the US debt issue the greenback lost ground against most of its counterparts, in particular the Japanese yen, and this in turn saw us recover back above 94 US cents overnight. This morning we find the Aussie back at 94.25 US cents with local focus likely to be on NAB business confidence before we again turn back to the developing situation in the US.
- We expect a range today of 0.9365 – 0.9470
New Zealand Dollar:
We find the Kiwi trading close to where it was this time yesterday as the two forces resulting from the crises in the US continue to pull the currency in opposite directions. Falls for major Asian equity markets yesterday initially saw us dip below 83 US cents as the risk aversion translated to moves lower for the commodity currencies. Also pushing us lower was a report out of the World Bank which lowered forecasts for growth for China and developing Asia as a whole which if it eventuates would translate to lower demand for New Zealand’s commodities. Heading into US trade the second force of the US debt issue came into play with the greenback coming under selling pressure, lifting the local unit back above 83 US cents but this didn’t translate to other crosses and NZD/JPY remains lower this morning at 80.40. This morning sees local business confidence data and with a similar reading out of Australia we may see some movements on that cross which is currently at 1.1335.
- We expect a range today of 0.8275 – 0.8335
Great British Pound:
The pound recaptured much of Friday’s losses yesterday, moving back towards 1.61 as the US debt issue had investors moving away from the greenback. While other currencies experienced a mixed day yesterday as risk aversion prevented any strong moves higher against the US dollar, the sterling was one of the favoured currencies for investors seeking to move away from the greenback but also looking to avoid the higher yielding, riskier assets. We currently find GBP/USD at 1.6090 and with most US data likely to be postponed while the government remains closed, direction will likely come from the Bank of England rate decision which is out on Thursday night. Meanwhile the Aussie and the Kiwi were unable to take full advantage of the fall in the greenback due to their strong risk correlation and we find GBP/AUD and GBP/NZD higher at 1.7075 and 1.9370 respectively.
- We expect a range today of 1.7040 – 1.7125
The US debt ceiling and the government shutdown continues to dominate headlines and investor focus, pushing the greenback lower while at the same time causing risk aversion. This has seen the US dollar fall sharply against the safe haven yen and drift lower against the Euro but the riskier assets such as the commodity currencies failed to push ahead as they were dragged down by falling equities. Those that were previously claiming that this will be just like all previous run ins with the debt ceiling (i.e. an eleventh hour agreement) are sounding less convinced as both sides of politics appear to have talked themselves into a situation where neither can give ground. Equities were down across Asia, Europe and the US with the S&P closing at a four week low with investors voicing their disapproval of the current impasse. In Europe there were some positives with confirmation that the region moved out of recession in the April to June quarter with the final reading of GDP coming in as expected at 0.3%, this aided in further lifting the shared currency against the greenback and we find it this morning at 1.3575. Looking ahead there will continue to be missed data pieces out of the US as the government shutdown prevents their release, while out of Europe we have a series of German data due for release tonight, but this will likely only garner minor attention as investors and the media remain focused on the debacle in the US. The yen has been the biggest benefactor of the current situation, due to its safe haven status, and we currently find USD/JPY at a near four week low at 96.75.
Obama: Republicans using 'extortion' on debt limit
US President Obama has said he is willing to hold budget talks with Republicans, but not until they agree to lift "threats" against the economy.
Mr Obama said they were committing "extortion" by demanding policy concessions in return for raising the US debt limit and reopening government.
The US government shut down last week when Congress failed to agree a budget.
Republican leaders on Tuesday reiterated calls for Mr Obama to open negotiations over ending the impasses.
At the White House, Mr Obama said he had spoken with Republican House Speaker John Boehner and was "happy to talk with him and other Republicans about anything".
But Mr Obama said any negotiations on the ongoing government shutdown or the debt limit "shouldn't require hanging the threats of a shutdown or economic chaos over the heads of the American people".
'Very deep recession'
He also warned of the repercussions of defaulting on the government's debt should Congress fail to raise the borrowing limit, currently set to be reached on 17 October.
Mr Obama said breaching the borrowing limit could disrupt capital markets, undermine international confidence in America, permanently increase the nation's borrowing costs and add to its deficits and debt, and pose the "significant risk of a very deep recession".
The US government partially shut down operations on 1 October after Republicans who control the House of Representatives refused to approve a budget, saying they would only do so if Mr Obama's healthcare reform law were delayed or stripped of funding.
Mr Obama and the Democrats have thus far refused, noting the law was passed in 2010, subsequently approved by the Supreme Court, and was a central issue in the 2012 election which Mr Obama won handily.
At the same time, the Republicans have refused to approve an increase in the US debt limit unless it is accompanied by significant changes to Mr Obama's health law.
Mr Obama maintains Mr Boehner could end the current government showdown by allowing the House to vote on a "clean" budget bill that does not alter the health law, because that could pass with a coalition of Democrats and moderate Republicans.
But doing so would risk his standing with the most conservative elements of his caucus, analysts say.
On Tuesday, Mr Boehner told reporters he "wanted to have a conversation" with Mr Obama and congressional Democrats.
"I'm not drawing lines in the sand," he said. "It is time for us to just sit down and resolve our differences."
'Too much shock'
US and foreign officials and economists have warned of severe economic consequences if the US defaults on its debt because the government is unable to borrow money to fund its obligations.
"Failure to lift the debt ceiling would be a major event. Prolonged failure... would almost surely derail the US recovery," said International Monetary Fund economic counsellor Olivier Blanchard on Tuesday.
"But the effects of any failure to repay the debt would be felt right away... leading to potentially major disruptions in financial markets both in the United States and abroad."
Philippine President Benigno Aquino warned that what happens in the US "affects us all".
"The US economy is the number one economy in the world," he said while attending the Asia-Pacific Economic Cooperation (Apec) in Bali.
"The world economy obviously is not in a position to withstand too much shock at this time."
The shutdown has already had a significant impact in the US.
Hundreds of thousands of workers have been sent home without pay, national parks, museums, and tourists sites have been closed, research has halted and more.
On Monday, US defence contractor Lockheed Martin said it would put 3,000 workers on unpaid leave, warning that number would rise if the government shutdown continued.
That announcement followed United Technologies' decision to lay off 2,000 employees temporarily, saying manufacturing had halted because there were no government inspectors working to sign off products.
Wall Street declines to 1-month lows as nobody listens in the US Congres
The US stocks market dropped hard on Tuesday as Investors are worrying about the continuing US shutdown. The Nasdaq and S&P indexes closed at 1-month lows.
The Nasdaq performed its biggest drop since August 27 while both the Dow and the S&P closed below key multi-month areas defined by multi-month uptrend around 14,854 pts and 1,665 pts, respectively.
In addition, 1-month Treasury yields rose to 0.35%, the highest since October 2008.
The Dow Jones declined 159.71 points or 1.07% to finish the day at 14,776.53. Below the 14,855 key support and testing late August lows around 14,775. The S&P 500 lost 20.67 points or 1.23% to 1,655.45; below key 1,665 area.
The Nasdaq Composite collapsed 75.55 points or 2.0% to finish the day at 3,694.83.
Janet Yellen nominated by Obama to head US Federal Reserve
US President Barack Obama has officially nominated Federal Reserve vice-chair Janet Yellen to be the next head of the US central bank.
He called her one of the nation's foremost economists and policy makers.
Ms Yellen said if confirmed by the Senate she would do her utmost "to promote maximum employment, stable prices and a stable financial system".
She said more needed to be done to strengthen the US economy although progress had been made recently.
The president praised Ms Yellen's ability to build consensus and listen to competing views.
He added that she was "committed to increasing employment and understands the human costs when Americans can't find a job".
If the nomination is confirmed by the US Senate, Ms Yellen, 67, would replace Ben Bernanke, who has held the post for eight years.
She has been his deputy for the past two years, and would become the first woman to head the Federal Reserve.
She has taught at Harvard University and the London School of Economics, as well as holding a series of senior administrative positions in the US.
'Depth of experience'
Ms Yellen, like Mr Bernanke, is seen as a "dove", meaning she prefers to priorities boosting employment by keeping rates low rather than worrying about inflation.
Her nomination had been widely expected since former Treasury Secretary Larry Summers withdrew his candidature last month amid opposition from liberal Democrats.
As Democrats control the 100-seat Senate, Ms Yellen's appointment would only need six Republican votes to overcome potential any procedural hurdles.
Some conservatives are scrutinising her views on monetary policy and her support for previous federal stimulus efforts.
On Wednesday, the second-most powerful Republican in the Senate questioned whether she was the right choice.
"Ms Yellen subscribes to the liberal school of thought that the best way to handle our nation's fiscal challenges is to throw more money at them," John Cornyn of Texas, the party's whip in the Senate, said in a statement.
"This stimulus obsession is the reason the nation finds itself in the fiscal calamity it does today, and the last thing we need is a leader at the helm of the Federal Reserve who is intent on more quantitative easing that harms our economy."
Senator Bob Corker, a leading Republican on the banking committee, said in a statement: "I voted against Vice-Chairman Yellen's original nomination to the Fed in 2010 because of her dovish views on monetary policy."
"We will closely examine her record since that time, but I am not aware of anything that demonstrates her views have changed."
Wall Street closes mixed as Obama nominates Yellen but remains in US shutdown
The Dow Jones and S&P 500 reverted strong initial losses and closed the day with gains. However, the Nasdaq logged its third negative day in a row as investors digested the officially nomination of Vice Chair Janet Yellen to replace Ben Bernanke as the Federal Reserve chairwoman.
The Dow Jones advanced 26.45 points or 0.18% to end the day at 14,802.98; the S&P 500 added 0.95 points or 0.06% to close the session at 1,656.40; and the Nasdaq Composite lost 17.05 points or 0.46% to 3,677.78.
DXY finishes lower on the session despite optimism expressed by risk asset
The US Dollar Index (DXY) only received directional guidance from Washington, DC and virtually no help from US data points, Japan or Europe. That is set to change Tuesday, though, with plenty of data due out from Japan and Europe and Fed Head speeches.
DXY at the mercy of DC developments and global data
The weakness in DXY persisted Monday despite the late-session rally in risk assets. Will the DXY revert to being viewed as a safety asset? Monday’s trading was indicative of just that.
All eyes will continue to be trained on Washington for any developments. However, Tuesday will bring potentially meaningful data points in the form of Japanese Industrial Production, German Import Prices and German and EuroZone Economic Sentiment. Additionally, US Fed Heads William Dudley and Richard Fisher will be speaking.
Technical outlook for DXY
Technicians still say there is one more hurdle to jump at 80.51 for the DXY bulls to officially be in the clear. Above that level, the next resistance would be 80.75. If resistance holds at 80.51 or lower – as it seems it might – we could still see a drop all the way down to the wave “C” target at 79.00.
T Minus 1 for US Downgrade, Gold Jumps 2.9% from 3-Month Low
London Gold Market Report
LONDON GOLD moved in a $10 range Wednesday morning around $1281 per ounce – the early August low, down more than 10% from that month's peak – as both the US House and Senate were due to meet in what headline writers called "a last ditch attempt" to resolve the government's debt-limit deadline, set for tomorrow.
US debt will likely be downgraded from its AAA status, the Fitch ratings agency warned yesterday, if the government hits a technical default when it reaches the current debt ceiling of $16.7 trillion on Thursday.
The US debt downgrade by S&P in summer 2011 is widely credited with helping investors take gold to record highs above $1900 per ounce.
US debt sales scheduled for Wednesday included $68 billion in 1-month Treasury bills.
Prices for outstanding 1-month T-bills fell early Wednesday, pushing their yield up to 5-year highs of 0.37% annualized.
"We feel that the onus of providing the countervailing deficit [in trade, to balance export surpluses worldwide] will eventually fall on the United States," Reuters today quotes Deutsche Bank strategist Sanjeev Sanyal.
US deficits will continue to offer the rest of the world's "savings glut" a home in US Treasury bonds, the newswire explains, extending the huge central-bank reserves already seen in Japan and China.
Sanyal has long argued that "the Dollar will most likely remain the dominant global currency long after the US has been [economically] surpassed," pointing to the persistence in world trade of Roman coin, Spanish silver and British Pounds after those empires began their decline and actively devalued their currencies.
The Chinese Yuan today hit a new record high vs. the Dollar for the third session running.
With gold rallying 2.9% at one point from yesterday's sudden 3-month low, world stock markets slipped.
"If the deadline is crossed, it could send gold higher," says Swiss investment bank UBS analyst Daniel Morgan. "But that would be combined with other financial market moves that would exert a lot of pressure on policymakers to find a solution.
"I wouldn't be looking to buy gold on the basis of this short-term debt ceiling issue."
"It is inconceivable," says the daily note from brokers INTL FCStone, "that the politicians in Washington will come up empty-handed."
That makes next week's US Federal Reserve meeting "about the only source of support" for gold.
Speaking Tuesday, Dallas Fed president Richard Fisher said "I personally would have a hard time arguing for us to dial [quantitative easing] back.
"My personal opinion is that [tapering QE is] not in play. This is just too tender a moment."
"Extended spending/quantitative easing augments our constructive view on gold," says a note from Japanese financial group Nomura.
"[So does] tail-risk potential from a US government default, a low-probability outcome, but a noteworthy associated non-linear impact."
Meantime in India, domestic gold prices rose to record highs above international benchmarks as local shortages worsened thanks to the government's strict anti-import policies and the failure – so far – to mobilize existing Indian holdings for resale through gold banking deposits.
Indian premiums over London quotes today hit $100 per ounce, according to dealers, up from $40 only a week ago.
"There is a little demand due to festivals," says Bachhraj Bamalwa of the All India Gems & Jewellery Trade Federation. But "there are no supplies in the domestic market.
"What little supplies that come, go to exporters,"
The Rupee edged higher against the Dollar on Wednesday morning, and the British Pound also jumped, hitting a 1-week high above $1.60 after new data showed the UK's jobless count falling faster than expected in September.
Wednesday morning's London Gold Fix still rose £10 per ounce from Tuesday AM's near-2013 low of £787, the lowest price in Sterling since end-June's 3-year low.
UK wages meantime rose only 0.8% on average this summer from a year earlier, separate data said Wednesday.
The slowest growth in average UK earnings on record, that was less than one-third the pace of consumer-price inflation, reported Tuesday at 2.7%.
US government employees head back to work
Hundreds of thousands of US government employees are back at work after President Barack Obama signed a law ending a 16-day government shutdown and extending the US debt limit.
The cross-party deal came hours before the US government risked running out of money to pay its bills.
"There are no winners," Mr Obama said, adding the US would "bounce back".
The deal followed 16 days of partial government shutdown, which began when Congress failed to agree on a budget.
Congress voted through the deal less hours before a deadline to raise the $16.7tn (£10.5tn) debt limit.
The measure approved in Washington funds the government to 15 January, and extends the US Treasury's borrowing authority until 7 February.
The deal does not resolve the budgetary issues that fiercely divide Republicans and Democrats. Instead, it establishes a cross-party committee of legislators tasked with crafting a long-term budget deal and reporting back to Congress by mid-December.
A faction of Republicans in the hardline Tea Party movement had pushed for the confrontation as a way to gut Mr Obama's healthcare reform.
However, Mr Obama and the Democrats refused to negotiate, and the law commonly known as Obamacare escaped relatively unscathed.
On Thursday, Mr Obama thanked congressional leaders for their help ending the government shutdown and raising the debt limit, but said both had "inflicted completely unnecessary damage on our economy".
"Nothing has done more to undermine our economy the last three years than the kind of tactics that create these kinds of manufactured crises," he said.
Mr Obama said politicians had to stop listening to "talking heads" and activists "who profit from conflict" and instead focus on growing the economy and creating a responsible budget.
"The American people are completely fed up with Washington," he said. "How business is done in this town has to change."
Mr Obama called the political crises "a spectacle" which had hurt America's credibility in the world.
And to the conservative Republicans who pushed the showdown as a way to extract policy concessions, he said: "Go out there and win an election."
Politicians, bankers and economists had warned of global economic calamity unless an agreement to raise the US government's borrowing limit were reached.
IMF head Christine Lagarde's positive response to the news was tempered by a call for further action.
"It will be essential to reduce uncertainty surrounding the conduct of fiscal policy by raising the debt limit in a more durable manner," she said in a statement.
Economists have estimated the shutdown cost the US economy billions of dollars.
Hundreds of thousands of employees were put on leave without pay during the shutdown, with many forced to delay purchases or even payment of routine bills. A few days into the shutdown Congress passed a law ensuring they would receive back pay.
Before dawn on Thursday, the US Office of Personnel Management, which manages the federal workforce, announced in a terse statement on its website that government workers should return to work as regularly scheduled.
A senior manager at the Department of the Interior, which oversees the national parks system and other public land, reminded employees to disable "out of office" email messages, change voicemail prompts, and "check on any refrigerators and throw out any perished food".
"We appreciate your sacrifices through these difficult times and we understand that the lapse in government activities has imposed hardships on you, your families, and the people we serve," Rhea Suh, assistant secretary for policy, management and budget, wrote.
Federal workers returning to the downtown Washington DC office of the Environmental Protection Agency (EPA) were greeted by Vice-President Joe Biden and a welcome note from their boss, agency head Gina McCarthy.
The shutdown affected Americans and visitors to the US in countless ways: most national parks were closed, medical research ground to a halt, and ordinary paperwork went unfinished, delaying visa applications, business permits and safety inspections.
US added 148,000 jobs in September
The US economy added 148,000 jobs in September, official figures show, lower than analysts had predicted.
The unemployment rate fell to 7.2%, down from 7.3% in August, the US Department of Labor said.
The release of the figures was delayed by the partial shutdown of the US government earlier this month.
Economists had predicted 180,000 job gains for September, and the lower-than-expected figure could raise fears the US economy is losing momentum.
Employment in professional and business services grew at the fastest pace with 32,000 new jobs added. Leisure and hospitality was the only sector to see a fall with 13,000 jobs lost.
Carl Leahey, senior adviser at Decision Economics, said the report was "so-so", and meant the US central bank was likely to continue its massive $85bn-a-month economic stimulus programme.
"This report will soften people's assessments of current conditions. With the possibility of a replay of the budget showdown as early as mid-January, why would the Fed want to pull any levers now?," he said.
Following the figures, stock markets turned higher, with the FTSE 100 up 0.5% at 6,688 and both the Dow futures and broader S&P index futures up 0.3%, as investors bet on the Fed continuing its stimulus programme at the same pace.
The dollar fell, under pressure from the expectation that the stimulus programme, which effectively creates more dollars, will continue at the same rate.
The US central bank, the Federal Reserve, maintained its economic stimulus programme last month, suggesting it was still uncertain about the strength of the economic recovery.
"Today's underperforming jobs number fully justifies September's cautious FOMC (Federal Open Market Committee)," said Joseph Trevisani, chief market strategist at WorldwideMarkets.
The Labor Department said the next US unemployment data would be released on 8 November, a week later than scheduled due to the partial shutdown of the US government.
Its workers were placed on unpaid leave during the shutdown raising fears the department will struggle to collect accurate data for October.
"The October survey will be compromised by the late survey and the unquantifiable indirect private sector job losses triggered by the shutdown, and the November numbers will be compromised by the recovery - we hope - of those same jobs," said Ian Shepherdson of Pantheon Macroeconomics.
US Unemployment Rate (Oct)
TODAYS IMPORTANT US MAJOR DATA:
The Unemployment Rate released by the US Department of Labor is the number of unemployed workers divided by the total civilian labor force. If the rate is up, it indicates a lack of expansion within the US economy. Therefore, a decrease of the figure is seen as positive (or bullish) for the USD, while an increase is seen as negative (or bearish).
High volatility expected