Dollar Stumbles Close to Three-Year Low

On Friday, the U.S. dollar lodge near a three-year low against a basket of currencies with fears over a possible shutdown of the U.S. government adding to its underlying woes stemming from its eroding yield advantage.

Dollar stumbles almost to the three-year low on Friday.

The dollar index rose at 90.518, after its fall of to as low as 90.104 on Thursday, a level that was last seen in December 2014. 

The dollar index has lost 1.8 percent so far in 2018.

Yesterday, the U.S. House of Representatives passed a bill to fund the government operations through February 16 and to avoid the shutdowns of agency this weekend, when the existing money expires. However, the Senate still must approve the bill, where it faces an uncertain future.

“In December, lawmakers had to pass tax cuts so the process seemed smooth. But this time the risk of a government shutdown seems higher, even though it is not our main scenario,” Shinichiro Kadota, a senior Forex strategist, stated.

Meanwhile, the euro increased at $1.2234, close to the three year high of $1.2323 struck on Wednesday. The common currency could post a fifth consecutive week of gains, having advanced 0.28 percent so far this week.

The dollar traded at 111.02 yen, with its rebound from the fourth-month low of 110.19 on Wednesday, already fading despite increase in the U.S. debt yields.

The 10-year U.S. Treasuries yield went up 2.627 percent, close to its peak of 2.641 percent in December 2016.

Last year, the dollar has fallen largely on expectations from central banks. However, the Federal Reserve are looking forward to end their policy of ultra-low, even negative, interest rates that they adopted to combat the 2008 global financial crisis and the recession that followed.

“The U.S. is no longer the only country raising rates. The market's focus is on how other countries are catching up with normalization in monetary policy,” told Barclays’ Kadota.

Some investors think that the European Central Bank will end its bond purchase program later this year.

Another underlying factor behind the dollar’s weakness was the global investors, including the sovereign wealth funds and central banks, for diversifying their holdings by swapping more funds into other currencies.

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