As investors and analysts expected, the U.S. Dollar has become one of the first victims of the U.S. Federal government’s shutdown. The U.S. Dollar Index slipped hard against its major peers, touching on a fresh 8-month low, while safe haven currencies got a boost from investors’ uncertainty. Nonetheless, expectations are that the government’s shutdown will be a short-lived one but the larger fear is that the Federal Reserve will now feel impelled to postpone tapering of its long held loose monetary policy beyond the anticipated start date.
The U.S. Dollar Index had at one point traded at 79.864 .DXY, a low not seen since mid-February 2013 before edging back more recently to 80.008, still a loss of 0.3%. The EUR/USD had traded more than 0.2% higher to $1.3589, with seemingly little impact from an increase in the unemployment rate in Germany; it recently traded at $1.35235. The USD/JPY fell to a low of 97.65 Japanese Yen before recovering to 98.05 Japanese Yen.
Analysts’ Outlook
One analyst believes that the effect of the shutdown on currencies has thus far muted the effect of economic data including the news that manufacturing activity unexpectedly slowed in the lasts quarter, but he anticipates that the greenback would feel additional sell pressure the longer the deadlock remains.