Washington shutdown fears sink U.S. dollar

SAN FRANCISCO (MarketWatch) — The euro climbed Friday to its highest level versus the U.S. dollar since January 2010 as traders dumped the greenback due to fears of a potential U.S. government shutdown.

The dollar index (DXY 74.95, -0.12, -0.16%) , a measure of the U.S. unit against a basket of six major rivals, slid to 74.892 from 75.553 late Thursday. It is the first time the index fell below 75 since December 2009.

The greenback “continues to weaken as further negative sentiment from the impending U.S. government shutdown also manifests itself as weakness against commodity prices with U.S. crude above $110, and silver hitting the $40 mark for the first time in over 30 years,” Michael Hewson, market analyst at CMC Markets, said in a note to clients.

The euro (EURUSD 1.4465, +0.0010, +0.0692%) changed hands at $1.4476, up from $1.4311 in late North American trading Thursday, and posting a weekly gain of 1.7% against the greenback. The 17-nation shared currency traded as high as $1.4444, according to FactSet Research data, its highest level since January 2010.

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“The U.S. dollar is likely to continue as the most unloved currency as the market’s focus shifts from the [European Central Bank] to the increasingly likelihood of a U.S. government shutdown,” said Michael Sneyd, currency strategist at Societe Generale.

House and Senate leaders said late Thursday that they had moved closer to a U.S. budget deal but had not yet reached agreement after again meeting with President Barack Obama. Government operations, funded through Friday at midnight, would partially shut down Saturday morning without a spending deal. Read Market Pulse on budget talks.

The euro continued its march higher as European finance ministers met in Hungary, where they are discussing a Portuguese bailout plan. Read "Portugal bailout price: More pain"

The euro saw only temporary pressure late Thursday after the European Central Bank delivered a long-awaited rate hike. The currency slipped after central bank chief Jean-Claude Trichet offered little indication that it would deliver further interest-rate increases at a more aggressive pace than already anticipated by market participants.

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“The ECB did not provide any additional positive signals for the euro,” wrote strategists at Commerzbank in Frankfurt. “That is not necessary for additional upwards moves in euro/U.S. dollar, though, the general dollar weakness is quite sufficient for that.”
Broad weakness

With the greenback in broad retreat, the Australian dollar (AUDUSD 1.0567, +0.0012, +0.1137%) continued to press into record territory, trading at $1.0569 in recent action, up roughly 1% from Thursday.

The U.S. unit also remained under pressure versus its Canadian counterpart (USDCAD 0.9558, +0.0006, +0.0628%) , going for 95.56 Canadian cents, down 0.4% from Thursday.

Statistics Canada on Friday reported a 1,500 net drop in jobs during March, while the unemployment rate declined to 7.7% from 7.8%. Read Friday’s story on Canada.

The British pound (GBPUSD 1.6377, +0.0001, +0.0061%) traded at $1.6386, up from $1.6325. Sterling had topped the $1.64 level after data showed producer prices rose at a faster-than-expected 0.9% rate in March, driving the annual rate of producer inflation to 5.4%.

Economists had expected increases of 0.7% on the month and 5.3% on a year-on-year basis.

The data suggested increased pressure on the Bank of England to boost interest rates, boosting the pound.
SEC eyes new stock rules

Federal securities regulators are moving toward easing decades-old constraints on share issues by private companies in a sweeping review that could remake the way start-ups raise capital.

Blerina Uruci, economist at Barclays Capital, said the central bank’s Monetary Policy Committee would have had a preview of the data when they decided Thursday to leave interest rates on hold.

“The apparent pickup in pipeline inflation pressures is likely to have been a source of discomfort at the meeting, but the MPC might have taken some solace in the fact that the increase was mainly in imported goods prices, supporting their argument that inflationary pressures at the moment are transitory and consumer price inflation is expected to fall sharply next year,” Uruci said.

In metals trading, gold futures (GCM11 1,476, +2.30, +0.16%) continued to climb, hitting a new record high above $1,470 an ounce. Read more about gold’s fresh record as silver tops the $40 mark.

The U.S. dollar was mostly flat against the Japanese yen (USDYEN 84.9800, +0.1200, +0.1414%) at ¥84.82 versus ¥84.89 late Thursday but it still posted a weekly loss of 0.9%.