No end in sight for the shutdown, USD continues to fall

The continuing shutdown of the US government is continuing to weigh on the dollar, which neared an eight month low this morning. Meanwhile, the euro, which has been boosted by positive data and a resolution of the Italian political crisis, rallied strongly, hovering just below its 2013 peak.

The dollar index fell to a low of 79.767, just shy of yesterday’s eight-month low of 79.627, before rallying slightly as the day wore on. Currently, the dollar is on track for its fourth consecutive week of losses. usdx 4oct Having peaked at $1.36465 yesterday, it’s highest since February’s high of $1.3711, the euro held firm at $1.3621. This marks a 0.8% rise against the dollar for the week. With concern over the continuing stalemate over the budget adding to growing worries about the chance of a US default later this month, markets have been shying away from the dollar.

The bad news for the greenback was compounded by a data release on Thursday that showed a slowdown in the growth of the US service sector over the last month. The shutdown means that the nonfarm payroll number, one of the most important events in the forex calendar, will not be released as planned this afternoon. So far, there has been no new date set for its release.

This means that the US Federal Reserve will have to wait a bit longer for confirmation of an improving labour market, which is one of its criteria for beginning to scale back its monetary stimulus programme. The delay is likely to exert even more downwards pressure on the dollar.

The ‘tapering’ of bond purchases had been widely expected to begin in September, but it now looks like it may not happen until 2014, with two senior Fed officials stating that monetary policy would remain loose to offset the harm to the economy caused by the political standoff.

With the dollar continuing to struggle, the yen was trading near a five-week high in spite of the Bank of Japan’s decision to delay any changes in policy. The dollar fell 0.1% to 97.12 yen, having fallen to a five-week low of 96.93 on Thursday.