On Friday, the dollar stumbled close to three-year lows with increased concern of a U.S. government shutdown discouraged investors, while U.S. Treasury yields continued their rally, reaching their highest levels since September 2014.
Legislation to ward off an impending federal government shutdown faced difficulties in the Senate on Thursday night, regardless of the earlier passage of a month-long funding bill by the House of Representatives. At midnight on Friday, federal agencies will be forced to close their doors when existing funding ends if new funding is not obtained.
The dollar index, which measures the greenback’s value against a basket of major currencies, was down 0.3 percent moving closer to this week’s three-year lows. The dollar is on track for its fifth week of declines and has lost two percent this year so far.
“Odds of a U.S. government shutdown have risen sharply in the past 24 hours,” said currency strategist Viraj Patel. “While we would expect such noise to keep the dollar on the back foot, any fundamental fallout at this stage would seem premature – not least as history tends to show that some sort of conciliatory approach to keep the government functioning in the long-run will ultimately prevail within Congress.”
Some investors believe that the concerns of a shutdown could have contributed to the opinion in bond markets, which remain under pressure from the probability that strong globally economic data will prompt the U.S. Federal Reserve to move forward with monetary tightening.
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On Friday, U.S. 10-year Treasury yields reached their highest level in over three years at 2.642 percent.
U.S. stock futures traded generally higher, leading to a strong open for Wall Street. This suggested that equity investors ignored the troubles in Washington.
Stock markets in London, Paris, and Frankfurt gained 0.3 to 1 percent, while the pan-regional STOXX 600 reached a fresh 2-1/2 year high as assurance regarding economic and earnings growth combined for a strong start for 2018.
The MSCI world equity index, which tracks shares in 47 countries, also hit record highs with Asian stock markets continuing to advance from Thursday’s data that showed an acceleration of growth in China for the first time in seven years.
China stocks closed at two-year highs, with the Shanghai index recording its fifth straight week of gains. Japan’s Nikkei closed the day 0.2 percent higher.