Dollar drops as U.S. debt limit spurs safety demand

Budget Path

Boehner said the House can’t pass an increase to the U.S. debt ceiling without packaging it with other provisions. The Obama administration has said it won’t negotiate with Republicans over funding the government or raising the debt ceiling, arguing that it is part of the basic functions of Congress and shouldn’t be used as a point of leverage. The U.S. will run out of its ability to borrow on Oct. 17.

“The view is that these guys might be crazy, but they’re not suicidal,” Richard Jerram, chief economist at Bank of Singapore Ltd., said in an interview on Bloomberg Television. “We should get a deal sometime in the next week.”

The dollar fell 2.5% in the past month, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was little changed, while the franc rose 1.6% and the euro gained 0.7%. The pound advanced 0.6%.

Forecaster Estimates

The most accurate foreign-exchange forecaster in the past quarter predicts the U.S. currency will rebound against the euro and pound. Hendrix Vachon, an economist and currency strategist at Desjardins Group, a Canadian credit union, foresees a quick resolution to the congressional standoff that will help the greenback rally, as U.S. growth outpaces Europe.

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, fell 0.1% to 1,008.99, the sixth decline in seven days.

Europe’s common currency traded at almost its strongest level since February against the dollar. It reached that level, 1.3646, on Oct. 3.

An index measuring investor confidence in the euro region fell to 6.1 this month from 6.5 in September, the Limburg, Germany-based Sentix research institute said today in an e- mailed statement. Economists had predicted an increase to 8.5, according to the median of 16 estimates in a Bloomberg News survey.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $9 billion, from $23 billion on Oct. 4, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar- yen exchange rate amounted to $3 billion, the largest share of trades at 33%. Options on the dollar-Chinese-yuan rate totaled $1.5 billion, or 16%.

Dollar-yen options trading was 35% more than the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Dollar-yuan options trading was 468% more than average.

www.bloomberg.com

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