He comments that European peripheral bond markets are relatively stable, with only a slight rise in Italian and Spanish ten-year government bond yields. After the House failed to pass a budget proposal last week, attention is now focused on whether the Democratic-controlled Senate can formulate a deal. He notes that expectations for the current round of budget talks have also been pared back, with initial hopes of a comprehensive agreement now seen as less likely, and an interim deal involving limited budget savings instead seen as a more realistic prospect.
He writes, “The Greenback’s decline perhaps reflects disappointment at limited progress in budget talks, but at the same time disappointment that is not severe enough to prompt broader financial market weakness and safe-haven buying of the U.S. Dollar. The U.S. dollar could soften further against most foreign currencies in what remains relatively quiet trading. The key exception could be the yen, which continues to soften against most currencies including the U.S. dollar as the new Japanese government pushes for an aggressive monetary and fiscal policy approach.”