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There are reports from Washington that a deal is getting closer: the more moderate Republicans in the Senate are getting close to a deal with their Democrat counterparts. And more importantly, House Speaker John Boeher is said to agree to take up the this Senate plan and allow voting on it, knowing that it will pass on Democratic votes.

The news is boosting the US dollar against the euro, pound, yen, and franc. The loonie, Aussie and the kiwi seem to be unaffected.

Update: EUR/USD dips below double support

These early are reports still need to be materialized. And, it needs to pass all the stages fast. A filibuster could still be seen in the Senate, by Ted Cruz or any other politician. The actual process: approval first in the Senate and then in the House, or the other way around, is unclear either.

However, if a a temporary deal is passed through the US political system, it will be a big relief, as the debt ceiling deadline is getting closer: the estimate due date is October 17th – tomorrow.

It’s still unclear whether the deal will push back the debt ceiling deadline to December, January or February. The longer, the better.

Apart from the current crisis, that triggered anger from all over the world, a short term deal will not be cheered for too long: the credibility of the US has already been damaged, and remaining in a state of crisis certainly weighs on the greenback and could push back QE tapering further off. It will probably be seen only in 2014 and overseen by Janet Yellen.

Currency reaction

  • EUR/USD is now below 1.35. The pair already reached a high of 1.3562 earlier in the day. European inflation numbers came out at 1.1% as expected. The ECB could ease later on.
  • GBP/USD fell below 1.60. It jumped over the line on excellent job figures, but USD strength is now overwhelming.
  • USD/JPY is now at new highs, above 98.80. USD/JPY could have fallen deeply on a US default.
  • USD/CHF is on the rise, trading at 0.9159. The franc is a safe haven, and is not needed now.
  • USD/CAD is sliding: Canada needs a strong US. With the good news, the loonie has room to rise. USD/CAD is now at 1.0356. Manufacturing sales dropped by 0.2%.
  • AUD/USD is trading at 0.9531, very close to the previous resistance of 0.9528. As a risk currency, it can gain on good news. In this case, the “risk on” forces are balancing the dollar strength.
  • NZD/USD is trading at 0.8418, hardly moved by the news. The story for the kiwi is the same as for the Aussie.

AUD/USD and NZD/USD are sliding a bit as well and EUR/USD is extending its fall.

Further reading:  A Stop Gap Debt Ceiling Solution Would be a Drag for USD