The U.S. dollar hovered close to a three-year low against other major currencies on Friday amid signs that the government could be inching towards a potential shutdown on Saturday.
The dollar index, which gauges the greenback performance against a basket of currencies, stood at 90.378, having slipped to as low as 90.104 this week, a level last seen in December 2014. So far, it has already lost about 2 percent in 2018.
On Thursday, the U.S. House of Representatives handed a bill to finance government programs through February 16 and prevent agency shutdowns this weekend when the current distributions end. The bill is still yet to be ratified by the Senate, where it faces an indeterminate future.
According to Shinichiro Kadota, a senior FX strategist at Barclays, “In December, lawmakers had to pass tax cuts so the process seemed smooth. But this time the risk of a government shutdown seems higher, even though it is not our main scenario.”
Meanwhile, the euro rose 0.2 percent to $1.2261, close to the three-year peak of $1.2323 hit on Wednesday. Having soared 0.5 percent so far this week, the common currency could report a fifth successive week of gains.
The dollar reduced 0.2 percent to 110.86 yen, with its rally from Wednesday’s four-month low already vanishing despite the increase in U.S. debt yields.
The 10-year U.S. Treasuries yield was up 2.638 percent on Friday as prices dropped, close to the December 2016 high of 2.641 percent on struck on anticipations Trump’s economic plans would consist of deficit-boosting tax cuts and infrastructure spending.
Since 2017, the dollar has slipped, greatly on expectations that central banks besides the Federal Reserve are looking to end their policy of ultra-low, even negative, interest rates that they implemented to battle 2008 global financial crisis and consequent fall.
“The U.S. is no longer the only country raising rates. The market’s focus is on how other countries are catching up with normalization in monetary policy,” Kadota of Barclay said.
Another potential reason behind the dollar’s recession has been global investors, including sovereign wealth funds and central banks, spreading their holdings by exchanging more funds into other currencies.
The top two overseas U.S. creditors, China and Japan, slashed their holdings of Treasuries during November, based on the Treasury Department data.
According to a report in December from the International Monetary Fund, central banks had lifted the distribution of non-dollar currencies to their foreign exchange reserves in the third quarter.
On Monday, the Bank of France said it already held some currency reserves in yuan, a few hours after the German central bank said it was seeking to transfer some of its reserves into the Chinese currency.
“European central banks are adding the yuan to their reserves. And if Chinese are diversifying, shifting to European bonds from U.S. bonds, that would suggest a shift from a regime where the dollars is overwhelmingly strong,” a market economist said.
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