The U.S. dollar slipped lower Monday, as rising optimism that the U.S. government shutdown could be coming to an end hit this safe haven.
At 04:00 ET (09:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 99.370, after logging mild declines in the past week.
The news that the U.S. Senate voted to advance a measure that could fund the U.S. government through January has boosted risk appetite, with the long-running shutdown, which entered its 40th day on Sunday, seen having a significant economic impact.
On prediction market Polymarket, the implied probability that the shutdown would end before November 15 surged to 92%.
On Friday, the University of Michigan’s consumer sentiment index weakened to its lowest level in nearly 3-1/2 years in early November, while White House economic adviser Kevin Hassett said the U.S. economy could contract in the fourth quarter if the shutdown dragged on.
“While some might argue that the end of the shutdown could be a risk-on, dollar-negative impulse for the FX markets, its impact may be more mixed,” said analysts at ING, in a note.
“Late last week, the dollar was under pressure on job layoffs and rhetoric that the U.S. economy could contract in the fourth quarter should the shutdown extend. At the same time, Friday’s release of poor US consumer sentiment data was read as a dollar negative. Progress to end the shutdown may be felt more by risk-sensitive FX cross rates than the dollar.”Ad. Not an offer or recommendation by Investing.com.
In Europe, EUR/USD gained 0.1% to 1.1579, showering some strength after ECB’s Vice President Luis de Guindos said in an interview Monday that the European Central Bank’s interest rates are at the appropriate level barring changes in the economic situation, implying that further cuts are unlikely in the near term.
He said the ECB needed to remain "very prudent and cautious" when setting rates even though the level of uncertainty, especially after a trade deal between the European Union and the U.S., had decreased in the past six months.
GBP/USD rose 0.1% to 1.3178, at the start of a week that includes some important U.K. economic data.
“We still think the prospects of a December 25bp cut from the Bank of England are underpriced,” said ING. “The market now attaches just a 60% probability to such an outcome. Feeding into the BoE story will be tomorrow’s release of the September wage data. This is expected to slow further and give the BoE greater confidence that inflation is less persistent than first thought.”
In Asia, USD/JPY traded 0.4% higher to 153.98, with the yen struggling following comments from Japanese Prime Minister Sanae Takaichi on Monday that she would work on setting a new fiscal target extending through several years to allow more flexible spending, essentially watering down the country’s commitment to fiscal consolidation.
USD/CNY traded 0.1% lower to 7.1173 following the release of data that showed consumer price index inflation rose past expectations in October, while producer price index inflation shrank at a slower-than-expected rate.
