Dollar weakens vs. euro as debt deadline looms

The dollar lost the most in two weeks against the euro (FOREX:EURUSD) as investors weighed whether U.S. lawmakers will be able to reach a last-minute agreement to end the fiscal impasse.

The greenback fell versus most major counterparts while U.S. stocks rose as Senate leaders worked on a deal to end the 16-day-old government shutdown and extend the U.S.’s ability to borrow, which will be exhausted tomorrow. Sterling climbed after U.K. jobless claims fell. New Zealand’s dollar rose to a four- week high as quickening inflation boosted bets on a boost in interest rates.

“The dollar broadly is on a weaker footing as what appeared yesterday to be some progress ahead of the deadline now seems much less likely,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said in a phone interview. “The bond and stock markets seems a bit too complacent. I’m not sure whether that complacency will maintain.”

The dollar fell as much as 0.3%, the most since its Oct. 2 closing, to $1.3568 per euro before trading at $1.3545 at 9:47 a.m. New York time, up 0.2%. The U.S. currency rose 0.4% to 98.58 yen, while the Japanese currency dropped 0.6% to 133.55 per euro.

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, fell 0.2% to 1,011.11. The gauge has stayed in range of 0.9 percentage point this month as traders waited to see if lawmakers would reach a deal on the budget deficit and debt ceiling. The range was 3.2 percentage points in September.

The Standard & Poor’s 500 Index rose 0.6%.

Pound Rises

The pound advanced for a third day versus the dollar as the Office for National Statistics said U.K. claims for unemployment benefits fell 41,700, the biggest decline since June 1997. The jobless rate as measured by International Labor Organization standards was unchanged at 7.7% in the three months through August.

“We suspect a lot of good news is now priced into the pound,” Derek Halpenny, European head of global-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, wrote in a note to clients. The recent strength has been “primarily driven by optimism over the economic outlook,” he said.

Sterling appreciated 0.1% to $1.6014 after rising earlier to $1.6059, the highest since Oct. 9.

New Zealand’s dollar, nicknamed the kiwi, gained for a fourth session as the statistics bureau said consumer prices increased 0.9% in the third quarter, the fastest pace since the period ended June 2011. An industry report released this week showed home prices climbed to a record in September.

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