(Bloomberg) -- The dollar rebounded after President Donald Trump and Democrats agreed to a three-month extension of the U.S. debt limit, paring an early decline seen in the aftermath of the Bank of Canada's surprise decision to raise interest rates.
The greenback pared losses to about 0.1 percent as the market reacted to numerous developments in rapid succession, including the debt limit agreement and the resignation of Federal Reserve Vice Chairman Stanley Fischer. The Bloomberg dollar index had earlier dropped as much as 0.4 percent after the Canadian rate hike, which sent the loonie to a two-year high against its U.S. counterpart. Market attention now turns to the European Central Bank's meeting Thursday, where traders await any clarity on the bank's plans to taper its bond-purchasing program.
- Trump sided with Democrats to tie a short-term extension to a Hurricane Harvey relief bill over arguments of fellow Republicans, who were said to press for a longer-term debt extension
- The dollar was up against most G-10 peers after the Bloomberg dollar index rebounded from session lows as USTs gave up gains. The dollar fell briefly to a fresh low mid-morning after an announcement that Fischer will resign effective mid-October for personal reasons.
- Fischer's decision to step down will solidify Trump's control of the composition of the central bank's leadership and make the Fed policy path in 2018 less certain, analysts wrote
- The euro traded in a tight band, briefly buffeted by a report that ECB officials are said to be studying quantitative easing adjustment scenarios for 2018
- EUR/USD traded at ~1.1915, stuck within a 1.1903/50 range ahead of the ECB meeting. The bank is expected to keep rates and policies on hold, but may offer insight about a potential tapering of QE. Traders will also parse Draghi's press conference for any remarks on the strength of the shared currency, which has posted conspicuous gains since late June
- USD/JPY rose ~0.5% to a session high of 109.40 after the debt ceiling news, as risk appetite improved in a market still harboring anxiety over North Korean tensions
- USD/CAD pared losses slightly to trade 1.2% lower at 1.2229. The pair slumped as much as 1.8% after the BOC's rate decision to hit 1.2146, the lowest level since June 2015
- The loonie rose more than 1% against each of its G-10 peers and was the strongest gainer against the dollar; the Bank of Canada said it decided to remove “some of the considerable monetary policy stimulus in place” despite excess capacity and subdued wage and price pressures. Market odds for a rate hike at Wednesday's meeting had been ~40% while those for an October hike were ~70%
- The Fed Beige Book said that firms in the Atlanta, St. Louis, and Minneapolis districts had turned down business because they could not find the necessary workers
- There were reports from firms in the Dallas and San Francisco districts that labor shortages were pushing up wages
To contact the reporters on this story: Katherine Greifeld in New York at kgreifeld@bloomberg.net, Dennis Pettit in New York at dpettit5@bloomberg.net.
To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Greg Chang
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
