The U.S. dollar pared earlier losses on Friday, but notched a fifth weekly loss, as investor concerns over a potential government shutdown.
What are currencies doing?
The ICE U.S. Dollar Index DXY, +0.21% which measures the buck against a basket of six rivals, was last at 90.593, up 0.1%, having erased its losses after trading around the lowest level in three years earlier in the session. On the week, the ICE index slipped 0.4%, making it its fifth week of losses in a row.
The broader WSJ Dollar Index BUXX, +0.10% was little changed at 84.42, falling 0.4% on the week.
The euro EURUSD, -0.1552% was slipped slightly as the dollar clung on to its small gain, changing hands at $1.2233, compared with $1.2239 late Thursday in New York. The shared currency is on track for a 0.3% weekly gain against the dollar, as analysts are looking ahead to the first meeting of the European Central Bank in 2018 next week.
The British pound GBPUSD, -0.3023% slipped back below the $1.39 barrier early in the U.S. trading day, after having climbed to an intraday high of $1.3945. Sterling last bought $1.3871, compared with $1.3895 on Thursday. On the week, the British currency has rallied 1%.
Versus the Canadian dollar USDCAD, +0.6041% the buck strengthened to C$1.2494, compared with C$1.2416 late Thursday, despite better-than-expected Canadian manufacturing data. On the week, the buck gained 0.3% against the loonie, as Canada’s currency is also known, even after the Bank of Canada raised interest rates on Wednesday.
Read: 3 things investors need to know about Canada’s rate hike
Against the Japanese yen USDJPY, -0.28% the dollar weakened, buying ¥110.68 compared with ¥111.11 on Thursday. On the week, the dollar-yen pair fell 0.3%.
Also read: BOJ and ECB expectations have trader hopes riding high for the yen and the euro
What is driving the market?
The dollar was sent lower as traders fretted over a potential government shutdown this weekend. The House on Thursday passed a one-month spending bill that would keep the government funded through Feb. 16, but the stopgap measure currently doesn’t have enough support to clear the Senate. The current interim funding bill that was passed in December expires at 12:01 a.m. Eastern Time on Saturday.
The losses for the dollar came even as yields on U.S. government paper continued to rise. The yield on the benchmark 10-year note TMUBMUSD10Y, +0.00% hit a three-year high in earlier activity but then turned south.
The pound trimmed gains after U.K. retail sales for December missed forecasts and showed a bigger-than-expected drop. The data could make it tough for U.K. officials to raise interest rates.
In continental Europe, analysts are gearing up for the first European Central Bank meeting of the year next week, following the central bank’s December minutes which suggested a potential change in language and tilt to hawkishness in 2018.
The other political vote this weekend besides the Senate’s decision on the debt ceiling is the German Social Democrat’s vote on whether or not to start official coalition talks with Chancellor Angela Merkel’s Christian Democrats.
What are strategists saying?
”The U.S. dollar is treading water today against major currencies as the threat of a government shutdown looms,” said Jeff Kravetz, investment strategist at U.S. Bank Private Wealth Management. “A shutdown would put modest downward pressure on the dollar as investors look to international markets for better short-term opportunities.”
The vote “once again serving as a reminder that, for all the bluster around the tax reform bill, Congress remains a legislative quagmire,” wrote Marc Ostwald, FX, rates and emerging markets strategist at ADM Investor Services International.
With regards to the SPD vote in Germany, he said: “This is far from assured, despite all the positive noises from the SPD leadership, with the grass-roots of the SPD seemingly very unenthusiastic.”
“For all the divergence of views about where Europe is headed, above all in respect of migration and freedom of movement, let it be understood that if the SPD Congress torpedoes a new grand coalition, it will be a bad day for Europe including the U.K.,” Ostwald said.
What are the data?
The data calendar was light on Friday, with only January consumer sentiment on the docket. The January indicator fell to 94.4 in January, its worst reading since July 2017.