Weekly: FX – Shutdown hurts USD

by: Georgette Boele , Roy Teo

FX-Weekly-7-October-2013-shutdown-hurts-USD11.pdf ()

EUR/USD has continued to move higher. Although the shutdown of US government had limited impact on financial markets, in currency markets the US dollar was clearly out of favour especially versus the EUR and the JPY. But this was not the only driver pushing EUR/USD higher. The ECB rate decision and the press conference that followed had a more substantial impact on EUR/USD. The market was somewhat disappointed that Draghi continues to talk about action but actually is not taking any measures. Around the same time, it became clear that the Letta coalition government Italy had survived the confidence vote. EUR/USD rallied to above 1.36 before consolidating. The US is facing headwinds from the US political stalemate and the fast approaching debt ceiling. As long as these uncertainties are there, the USD will unlikely recover. Once US government shutdown is ended, the debt ceiling extended, and US data positively surprise, USD will rally again.