Dollar drifts as markets wait for news on US budget talks

October 7, 2013

Dollar weakness due to the gridlock in US politics continues to be the main theme in currency markets on Monday. Investors are unwilling to take on risk while there is no sign of progress by US policymakers to negotiate the US budget and debt ceiling.

Talks in the US Congress over the weekend showed neither Republicans nor Democrats reached a compromise. There are less than two weeks left until the US debt ceiling is reached and unless this limit is raised, the US government will default as it will be unable to pay its debts. 

This default will cause a domino effect through the US economy as well as to the rest of the world since many other countries hold US dent in the form of US treasuries.

The European trading session was relatively quiet as investors are standing back, with major currency pairs remaining within recent ranges. 

The dollar is down 0.15 percent against a basket of major currencies to an eight-month low around 80.0. 

Yen is strong due to the US government standoff, pushing the USDJPY to 96.92 yen.

Euro gained as a result of the soft dollar, with EURUSD up 0.1 percent to $1.3575, close to an eight-month high.  

Risk aversion led to a flight to the safety of German bonds, thereby leading to a drop in the 10-year German bond yield by 2 basis points to 1.81 percent.

Trading is expected to remain light in the US session as there are no key data releases. US Congress is reconvening and investors await any headlines regarding this.

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