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Forex pairs in this Article » EUR/USD (London) - Lee Hardman, FX Analyst at the Bank of Tokyo Mitsubishi UFJ notes that the US dollar has stabilized in the Asian trading session after the dollar index had fallen back towards support from 200-week moving average at 79.96.

Key Quotes:

“The US dollar has also derived modest support overnight from the announcement that a bipartisan budget agreement has been reached that will ease automatic spending cuts by about USD63 billion over two years and reduce the deficit by a further USD23 billion over ten years.”

“While the Ryan-Murphy plan is relatively small, the compromise agreement would likely help to avoid another government shutdown in January of next year and at the start of the next fiscal year in October 2014.”

“However, the budget plan will not include an extension to the debt ceiling which is likely be hit around the end of Q1 2014. The House is expected to put the deal to a vote by Friday before recessing for the year, which will then likely be followed by a Senate vote next week.”

“Should the proposed budget plan pass Congress it will reinforce our confidence that economic growth in the US will likely strengthen in 2014.”

“At the margin, it also increases the likelihood that the Fed will begin to taper QE sooner rather than later as downside risks to growth will ease. Overall it should prove a modestly positive development for the US dollar although it clearly fails to address the long-term budget challenges which will be left for further down the road.”
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