Dollar hurt by U.S. shutdown fears, Treasury yields at highest since 2014

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LONDON – The dollar wallowed near three-year lows on Friday as heightened fears of a U.S. government shutdown unnerved investors, while U.S. Treasury yields continued an upward march to hit their highest levels since September 2014.

Legislation to stave off an imminent federal government shutdown encountered obstacles in the Senate late on Thursday, despite the passage of a month-long funding bill by the House of Representatives hours earlier.

Without the injection of new money, no matter how temporary, scores of federal agencies will be forced to shut starting at midnight on Friday, when existing funds expire.

The dollar index, which measures the greenback’s value against other major currencies, was down 0.3 percent at 90.230 .DXY and close to three-year lows hit this week. It has already lost 2 percent in the early days of 2018.

“The fear of the U.S. government shutdown has made investors nervous,” said Naeem Aslam, chief market analyst at Think Markets UK. “There is a strong possibility that the U.S. government shutdown may become a reality.”

Market players said worries of a shutdown may have also weighed on sentiment in bond markets, which remain under pressure from expectations that strong economic data globally will encourage the U.S. Federal Reserve to press ahead with monetary tightening.

U.S. 10-year Treasury yields hit their highest level in more than three years at 2.642 percent US10YT=RR on Friday, and were set for their biggest weekly rise in a month.

“It’s a continuation of the trend and expectations for a normalization of monetary policy,” said Chris Scicluna, head of economic research at Daiwa Capital Markets, referring to rising U.S. bond yields. – Reuters

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