Washington’s budget paralysis and worries it will lock up talks on increasing the US debt ceiling sent the dollar to an eight-month low against the euro Wednesday.
The second day of a government shutdown, because Democrats and Republicans have not agreed a budget for the fiscal year that began October 1, continued to erode confidence in the greenback and other financial markets.
At 2100 GMT, the euro traded at $1.3580, compared with $1.3527 late Tuesday.
The yen gained, meanwhile, despite concerns that a new sales tax hike, seen as crucial to shrinking Japan’s debt, would derail a budding economic recovery.
The dollar fell to 97.34 yen from 97.94, while the euro dropped to 132.21 yen from 132.51.
Most attention was focused on the growing drift of Washington’s budget stalemate toward rolling into the crucial issue of raising the country’s borrowing ceiling, necessary to cover a monthly budget deficit of about $60 billion.
The Treasury and White House have warned that if the debt cap is not raised from the current $16.7 trillion by October 17, the country could be forced to default on its obligations.
But some congressional Republicans have threatened to block the limit increase to extract political concessions from the White House.
President Barack Obama warned Wednesday that Wall Street “should be concerned” about an impasse over the debt limit.
“When you have a situation in which a faction is willing potentially to default on US government obligations, then we are in trouble.”
The British pound rose to $1.6223 from $1.6193, while the dollar fell to 0.9026 Swiss franc from 0.9054 franc.
[Image via Agence France-Presse]