U.S. Dollar Rises Following Budget Agreement
By Daniel Kruger
The U.S. dollar rose after Senate leaders announced a two-year budget agreement that pushed back concerns that a partisan stalemate could lead to a government shutdown or a debt default.
The Wall Street Journal Dollar Index, which measures the currency against a basket of 16 others, posted its third gain in four days, rising 0.5% to 84.23. Even as the dollar gained, rising 0.9% against the euro, it declined 0.2% against the Japanese yen, as investors continued to seek haven assets after a recent surge in volatility roiled financial markets.
Congress's budget agreement eases some political risks which investors and analysts said may have contributed to recent dollar weakness. A stopgap budget agreement reached last month was set to expire Thursday evening, and analysts expected the U.S. government to reach its statutory borrowing limit in early March. The risk of a government shutdown or a default on the nation's debt may have led some investors to shun the currency given the backdrop of persistent political risk.
The gains represented "a relief rally," said Paresh Upadhyaya, who manages currencies at Amundi Pioneer Investments. After a three-day shutdown last month, it is likely "there was a little bit of political risk built into the dollar," he said.
More modest gains in the dollar earlier in the day were a continuation of the advances for the currency that came amid the sharp drop in stock prices last week and on Monday, which saw the Dow Jones Industrial Average record its biggest single-day point decline on record.
"There's still some caution," said Eric Viloria, a currency strategist at Wells Fargo Securities. The extreme movements in asset prices and the concerns they have raised about the Federal Reserve's ability to match its December forecast for three interest-rate increases this year will likely have only a "very limited" effect on the dollar, he said.
Wells Fargo continues to forecast that the dollar will decline over the medium- and longer-term.
Write to Daniel Kruger at Daniel.Kruger@wsj.com
(END) Dow Jones Newswires
February 07, 2018 18:13 ET (23:13 GMT)Copyright (c) 2018 Dow Jones & Company, Inc.