Euro rallies as U.S. budget spurs shutdown concern

Economic Reading

Purchases of new houses in the U.S. climbed 6.6% to a 420,000 annual rate in August after plunging in July by the most in three years, according to economists in a Bloomberg News survey before the Commerce Department data today. Durable goods orders, excluding transportation, decreased 0.1% in August after falling 0.5% the prior month.

The U.S. Senate is set to hold a test vote today on legislation passed by the House of Representatives to cover federal spending through Dec. 15, and choke off funds for President Barack Obama’s health-care law. The debate may extend past a Sept. 30 deadline. The next fiscal year begins Oct. 1.

“While it’s likely that the U.S. will reach a budget deal in the end, the uncertainty surrounding it in the meantime has fueled risk aversion,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “The dollar and the yen tend to be supported in an environment where investors are paring back on risky assets.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, was little changed at 1,013.59 after climbing 0.2% yesterday.

Euro Confidence

The euro rose after GfK SE forecast in a report its German consumer-confidence index will rise to 7.1% in October, the highest since September 2007. The Nuremberg-based research company said its measure of economic expectations climbed to 10.7 in September from 1.8 in August.

The derivatives market is showing the most confidence in the euro area since before the financial crisis as the premium traders pay to exchange euro-denominated loans for dollar funding for one-year has fallen to the lowest since March 2008.

The one-year cross-currency basis swap between euros and dollars shrank to minus 8.25 basis points today, from minus 24 at the end of last year, data compiled by Bloomberg show.

A negative swap rate signals that investors are willing to receive reduced euro interest payments to obtain dollar funding, and a smaller spread signals more confidence in the currency.

The euro has gained 5.6% this year, the biggest increased among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 3% and the yen fell 10.8%.

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