Dollar slides back to 3-year low on fears of government shutdown


The dollar fell anew on Friday, as concerns over a potential government shutdown outweighed a rally in U.S. Treasury yields, which usually is supportive for the greenback.

What are currencies doing?

The ICE U.S. Dollar Index

DXY, -0.23%

 , which measures the buck against a basket of six rivals, fell 0.3% to 90.243, trading around the lowest level in three years.

The broader WSJ Dollar Index

BUXX, -0.31%

 fell 0.3% to 84.18.

The euro

EURUSD, +0.3840%

 rose to $1.2271 from $1.2239 late Thursday in New York. The shared currency is on track for a 0.6% weekly jump against the dollar, lifted by hawkish minutes from the European Central Bank last week.

The pound

GBPUSD, +0.2375%

 climbed to $1.3941, compared with $1.3895 on Thursday.

The dollar also declined against the yen, buying ¥110.57 compared with ¥111.11 on Thursday.

What is driving the market?

The dollar was sent lower as traders fretted over the possible government shutdown this weekend. The House on Thursday passed a one-month spending bill that would keep the government funded through Feb. 16, but the stopgap measure currently doesn’t have enough support to clear the Senate. The current interim funding bill that was passed in December expires at 12:01 a.m. Eastern Time on Saturday.

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The losses for the dollar came even as yields on U.S. government paper continued to rise. The yield on the benchmark 10-year note

TMUBMUSD10Y, +0.33%

 rose 0.7 basis point to 2.6318%, trading at a more than three-year high.

The pound trimmed gains after U.K. retail sales for the December missed forecasts and showed a bigger-than-expected drop. The data could make it tough for U.K. officials to raise interest rates.

What are strategists saying?

“The prospect of a U.S. government shutdown has hit the prospects of a dollar rally in the past couple of days as the greenback falls away again. However, this comes as U.S. Treasury yields continue to rise, and interestingly the U.S. yield curve is steepening,” said Richard Perry, market analyst at Hantec Markets.

He explained that the yield is about to break out further and move toward 3.0%.

“This whole scenario should be supportive for the dollar (at least near term), but the potential for no agreement in the Senate over extending government funding is hampering the dollar,” he added.

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