Discussions surrounding the US shutdown and debt ceiling have intensified as the October 17th deadline becomes ever more pressing. Under tentative plans formulated in the Senate, the debt limit would be extended to February and the government funded through January with comprehensive budget discussions in the interim period.
There is still a high degree of uncertainty surrounding the House of Representatives stance even if the Senate can reach agreement. The overall tone was generally more positive which underpinned risk appetite and also underpinned the dollar as USD/JPY moved to highs around 98.70.
The Australian dollar gained from a neutral set of Reserve Bank minutes as well as the improvement in risk conditions with AUD/USD breaking above the 0.95 level for a peak near 0.9550.
The headline German ZEW index was stronger than expected at 52.8 for September from 49.6 previously. The overall elements were, however, mixed and failed to provide any sustained Euro support. Similarly, a sharp decline in Greek bond yields failed to provide any currency backing.
The Euro was vulnerable to a correction after failing to break above resistance levels in the 1.36 area with a further suggestion that a prominent Asian central bank was defending this resistance area which increased the potential for a short-term correction and also frustrated Euro bulls. The dollar found strong support against the Swiss franc with a USD/CHF move above the 0.9130 area helping to trigger wider upward pressure on the US currency.
EUR/USD dipped sharply ahead of the US open with a slide to the 1.35 area and stop-loss selling then triggered lows in the 1.3480 area before consolidation in a 1.3480-1.3500 range as markets waited fresh US developments.
The US New York Empire index was weaker than expected at 1.5 for September from 6.3 previously, reinforcing speculation that the US government shutdown could have a wider impact in undermining the economy as well as further dampening any expectations of an October Fed tapering.
The UK consumer inflation rate held steady at 2.7% for September, contrary to expectations of a slight decline, while there was an increase in the core rate. Traders also tended to focus on an increase in house prices with an overall index at record highs in nominal terms. GBP/USD briefly pushed above the 1.6000 level before hitting resistance again and then sinking sharply as the US currency secured wider gains before finding support below 1.5920.