Dollar Under Pressure from Budget Debate

In the global currency markets, the dollar was under pressure last week due to the uncertainty of negotiations in Washington regarding the budget, but the euro also failed to strengthen due to the political crisis in Italy and unconvincing economic data from the eurozone.

The euro exchange rate against the US dollar moved in a very narrow range last week, remaining unchanged at 1.3520 dollars on a weekly basis. Against the Japanese currency, the price of the euro slipped by 1.1 percent to 132.85 yen. The US dollar also weakened against the yen by 1.1 percent, bringing its exchange rate down to 98.25 yen.

The dollar is under pressure from the uncertain debate between Democrats and Republicans in Congress regarding the funding of government services after October 1, when the new fiscal year begins.

On Friday, after a heated debate throughout the week, the Senate passed a bill for emergency funding of services after October 1, but it seems that the House of Representatives, where Republicans hold the majority, will not do so, which could lead to a shutdown of certain services next week.

Republicans want to use this debate to force President Barack Obama to reduce budget expenditures for his healthcare program, making it uncertain whether an agreement will be reached at the last minute.

While the situation in the US remains unclear, investors are not particularly willing to buy the US currency.

“There is considerable reluctance to buy dollars until the situation regarding the debt ceiling is clarified,” said Daragh Maher, a strategist at HSBC.

However, the euro has not managed to strengthen in such a situation as it too is under pressure due to the weak recovery of the eurozone economy and the political crisis in Italy.

According to data from the European Central Bank (ECB), corporate lending decreased in all major eurozone economies in August, and household lending does not inspire confidence, indicating that the economy is on fragile ground.

Investor attention has also been drawn to the political crisis in Italy. Tensions between the two coalition partners have been rising for weeks due to measures to expel the leader of the Italian right-wing center, Silvio Berlusconi, from parliament after he was convicted of tax fraud last month.

On Friday, Prime Minister Enrico Letta’s government failed to agree on key measures to bring the budget deficit within the limits set by the European Union, and on Saturday, Berlusconi withdrew his ministers from the ruling coalition, effectively collapsing the government.

Whether new elections will be held or a new coalition formed will be revealed in the coming days, but it is clear that this delays the necessary reforms in Italy, which has been suffering from recession for two years, has 2 trillion euros in public debt, and high unemployment.

– This is the latest in a series of political tensions that threaten not only the stability of the current government but also the long-term reform process, said Timo del Carpio, an economist at RBC Capital Markets.