A US budget deal was passed in the Senate and the House late on Wednesday and, with President Obama signing immediately, the shutdown has ended and the debt ceiling lifted. The government will be funded until January 15th and the debt ceiling lifted until February 7th. Budget talks will continue in the short term which will maintain the threat of a fresh impasse early next year.
The US currency still found it difficult to sustain the best levels against the yen and was again unable to move above 99.00 as a final US deal was confirmed with a drift back to the 98.50 area.
There were expectations that the Federal Reserve could decide not to taper bond purchases at all this year given the government shutdown impact. This continued to hamper underlying dollar support, although there will also be speculation that there will be a rebound in spending over the next few weeks and US releases are likely to be very mixed.
The dollar was unsettled in part by the inability to break key Euro support levels and was subjected to sharp selling pressure early in Europe on Thursday. The US currency continued to be undermined by the fact that it is only a short-term debt deal and underlying sentiment towards the dollar has weakened with unease over potential capital outflows.
This shift in sentiment was compounded by the Chinese rating agency Dagong’s decision to downgrade the US credit rating again. Although the move may be politically motivated, it also maintained fears of an underlying asset switch away from US securities. EUR/USD broke above the 1.3600 level and pushed to highs above 1.3650 at the US open.
The US initial jobless claims was broadly in line with expectations with a decline to 358,000 in the latest week from 373,000 the previous week. The Philadelphia Fed index was stronger than expected at 19.8 for October from 22.3 previously which should boost optimism that economic conditions are holding firm despite the government disruption.
The dollar was, however, unable to gain any traction following the data and EUR/USD pushed to highs around 1.3680 before being subjected to some profit taking. USD/JPY dipped below 98.0 while USD/CHF fell sharply to lows near 0.9000.
Sterling staged a sharp recovery late on Thursday as GBP/USD support levels in the 1.59 area held. The latest retail sales data was broadly in line with expectations with a 0.6% monthly increase from a revised 0.8% decline previously. There were underlying concerns that spending momentum could slow, but this was a side issue during Thursday as dollar weakness dominated.
After regaining the 1.60 level, GBP/USD pushed sharply higher to a peak above 1.6160 as Sterling was also able to out-pace the Euro later in the European session.