The dollar rose on signs U.S. lawmakers will reach an agreement on raising the debt ceiling one day before the Treasury Department said it will run out of cash to pay its bills.
The U.S. currency climbed versus the euro, yen and Swiss franc after Senate Majority Leader Harry Reid’s office said that he signed off on a proposed deal, pending approval of fellow Senate Democrats. The Australian and New Zealand dollars gained versus the yen as prospects for a debt accord boosted demand for higher-yielding assets. The Dollar Index, which tracks the currency against six counterparts, fell in July as debt talks and concern over slow growth damped demand for the greenback.
“If we get some kind of agreement we can see a relief rally in the U.S. dollar,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “Any relief rally will probably be short-lived because it’s quite clear that the U.S. economy has lost momentum and further government fiscal restraint will drag on the economy.”
The dollar rose to 77.56 yen as of 6:29 a.m. in Tokyo from 76.76 yen on July 29 in New York, a record-low for a closing level. It climbed to 79.20 Swiss centimes from 78.55 last week, when it touched an all-time low 78.51. The greenback strengthened to $1.4363 per euro from $1.4398. The euro advanced to 111.37 yen from 110.54 yen.
“Senator Reid has signed off on the debt-ceiling agreement pending caucus approval,” Reid communications director Adam Jentleson said in a statement issued at early evening in Washington.
Congressional leaders and the Obama administration negotiated to finish the details of the agreement to raise the U.S. debt ceiling, paving the way for possible votes in the Senate and the House on a plan to avert a U.S. default and calm market concerns.
Senate Republican leader Mitch McConnell earlier said congressional negotiators and President Barack Obama are “very close” to a deal to raise the debt limit, having made “dramatic progress” on a compromise.
After a weekend of discussions between Republicans and Obama’s team, House leaders were aiming to schedule action on the emerging compromise to raise the $14.3 trillion debt ceiling, cut spending by about $1 trillion, and call on Congress to shave another $1.8 trillion from long-term debt by year’s end -- or face punishing reductions across all areas of the government, including Medicare and defense programs.
“Markets will be relieved if a default can be avoided,” said Lena Komileva, the head of global head of Group of 10 strategy at Brown Brothers Harriman & Co. in London. “A successful vote will probably halt a major selloff and provoke a relief rally.”
Traders boosted bearish bets against the dollar last week to the highest level in more than two months on concern the political stalemate in Washington will erode the value of the world’s reserve currency.
Aggregate wagers against on a decline in the greenback rose for the fourth straight week, data from the Commodity Futures Trading Commission in Washington show. Futures traders added to bets the dollar will weaken against the euro, yen, Australian and Canadian dollars, British pound and Mexican peso. Wagers on a drop versus the franc were trimmed after the Swiss currency’s climb to a record last week.
Investor sentiment on the dollar weakened through July as lawmakers clashed over spending cuts and taxes when negotiating an increase of the debt ceiling before the U.S. exhausts its borrowing capacity tomorrow. The franc rallied to records against the dollar and the euro as the U.S. budget impasse, slowing growth and Europe’s sovereign-debt turmoil spurred demand for a refuge.
U.S. gross domestic product expanded at a 1.3 percent annual rate in the second quarter, after a 0.4 percent pace in the prior period, the worst six months since the recovery began in June 2009, Commerce Department figures showed July 29.
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