Dollar rallies on hopes of an agreement in Washington

Published: 15 Oct at 9 AM Tags: Euro, Dollar,

Signs that Democrat and Republican Senators could be nearing a deal that would reopen Washington and stave off a debt default have helped the dollar to pull back to its highest level in two weeks against the yen. The greenback is currently trading at 98.64 yen after earlier rising as high as 98.71 yen.

Following yesterday’s low of 80.126 the dollar index, a measure of how the greenback is doing against a number of other major currencies, was up to 80.367. Just after partial government shutdown earlier in the month the dollar index fell as low as 79.626.

The euro is holding steady at $1.3550. Investors are now watching closely to see if a deal can be reached before a possible debt default on Thursday.

However, even though there are positive signs, any deal will have to pass through the House of Representatives. The plan at the moment appears to be to fund the government until mid-January and to push up the debt ceiling until the middle of February next year.

It is unlikely that the dollar will be able to sustain any rally as the same problems are likely to return early in the New Year. This means the Federal Reserve is likely to keep its easy money policy in place and continue to buy massive amounts of bonds.