The dollar marginally slipped against a basket of major currencies on Tuesday as the government shutdown began after the House and the Senate failed to agree on a federal spending bill due to a discord over the implementation of the Affordable Care Act, also known as Obamacare.
The dollar, which slid to its lowest level since Jan.1 against the euro, was down 0.29 percent against the euro as of 4:30 a.m. EDT to touch $1.3563. Against the British pound, the greenback fell 0.26 percent as of 4:30 a.m. EDT to reach $1.6227. And, against the yen, dollar fell 0.25 percent as of 4:30 a.m. EDT to reach 98.01 yen.
"The yen, the pound and, to a lesser extent, the euro have all benefited from the uncertainty,” Andrew Salter, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney, told Bloomberg. “Those currencies are reserve currencies with financial markets that can accommodate a flight to quality.”
The shutdown came ahead of another major deadline in mid-October to raise the federal government’s debt ceiling, and a failure to do so could result in the U.S. defaulting on its debt for the first time in its history, and could potentially hurt the U.S. and global economies.
Despite the government shutdown, Asian and European markets edged up while U.S. stock futures were also up in pre-market trading on Tuesday morning, signaling that markets see a possible upside in government activities coming to a standstill.
“The market is anticipating that a shutdown means the Federal Reserve will also maintain its easy policy stance for longer because of the risks to the U.S. economy,” Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore, told Bloomberg. “We are seeing some strength in the European currencies and a bit of weakness in the U.S. dollar.”