The U.S. dollar rose on Monday after the U.S. government avoided a shutdown on the weekend, potentially extending its weekly gaining streak to four.
The dollar index, which measures the currency against several major peers, rose 0.62 percent to 106.89. Against the greenback, the euro fell by 0.75 percent to $1.0491. Meanwhile, the Japanese yen weakened by 0.31 percent against the dollar to 149.77. The yen fell to 149.90 earlier in the session.
U.S. Congress passed a stopgap funding bill late on Saturday, averting a shutdown by mere hours. A shutdown occurs when both chambers of Congress cannot agree on the approximately 30 percent of federal spending they need to approve before the start of the fiscal year on October 1.
If it commenced, tens of thousands of federal employees would be placed on unpaid leave. It would also suspend various government services.
The bill, which allocates funding for the government at the current annual rate of $1.6 trillion until November 17, gained substantial support from Democrats. This came after Republican House Speaker Kevin McCarthy withdrew his previous request for a partisan bill.
The bill includes funding for natural disasters but does not make significant compromises on spending levels, a crucial requirement for the Republican-controlled lower house. It also ensures that essential government services, such as the Federal Aviation Administration and National Flood Insurance Program, continue to operate. Both programs would have expired on Saturday midnight if Congress did not manage to avert the shutdown.
"The deal in Congress to avoid a government shutdown removes near-term uncertainty from the economic outlook," said Richard Saperstein, chief investment officer of New York-based investment firm Treasury Partners.
However, analysts say the news hardly improved market sentiment. Moreover, Federal Reserve Vice Chair for Supervision Michael Barr said the central bank would keep interest rates higher for longer.
Recent data showed that the U.S. manufacturing index had climbed to 49.0 last month from 47.6 in August. The figure was the highest since November 2022 despite remaining below 50. This was the longest stretch since the Great Recession in 2007-2009.
"It's the feeling that the U.S. economy can stomach higher interest rates for a little bit longer."
Bipan Rai, North America head of F.X. strategy at CIBC Capital Markets.
According to Oanda senior market analyst Edward Moya, the U.S. dollar growth remained more robust than its peers. He also mentioned that the situation would likely maintain a significant interest rate differential in favor of the U.S.
Fluctuating oil prices
While the dollar rose, West Texas Intermediate (WTI) dropped by more than two percent in Monday afternoon trading. Brent crude also fell by almost two percent. This came after a week of rising oil prices, with many optimistic that oil would reach $100 per barrel.
Several factors put downward pressure on oil prices, including the dollar's strength, concerns about inflation potentially reducing demand and predictions of rising oil supply. Profit-taking was anticipated because oil had reached its highest levels in 10 months in the third quarter, with gains of nearly 30 percent.
Another factor affecting oil prices was the World Bank's prediction of a slowdown in Chinese economic growth, which might reduce the oil demand. According to the World Bank's Monday forecast, China is expected to achieve a growth rate of 5.1 percent in 2023, compared to three percent last year. However, this still indicates a deceleration in growth compared to the pace observed since April.