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The dollar dropped against most of its major counterparts as lawmakers failed to agree on a federal budget, increasing the likelihood of a government shutdown, and as signs of global growth damped demand for haven assets.
The euro reached an almost 15-month high versus the dollar after a report showing German exports rose the most in five months, boosting bets that policy makers will lift interest rates further to curb inflation.
“The main driver behind dollar weakness today is the market concern about a government shutdown,” said Paresh Upadhyaya at Bank of America Corp.
Leaders in Congress remained divided about a budget, hours away from potentially the first U.S. government shutdown in 15 years.
Europe’s currency has rallied 7.8% against the dollar this year as economic growth in Germany and accelerating consumer prices in the euro region boosted expectations that interest rates will need to rise to curb inflation, which reached a two-year high of 2.6% in March.
A report showed German exports jumped 2.7% in February from a month earlier, when they dropped 1%. That was the biggest month-on-month increase since September and above the 2% median estimate.
The ECB’s decision to raise its main rate yesterday comes as the central banks of other developed nations, including the U.S. and Japan, keep borrowing costs near zero to support their economies as they recover from the financial crisis.
The Fed isn’t expected to raise its target funds rate until the first quarter of 2012 and the Bank of Japan will probably keep borrowing costs on hold for the next 12 months, the median estimates in two Bloomberg surveys show.
The yen headed for a fourth weekly drop versus the euro, the longest losing streak in 20 months, on speculation the BOJ will continue with accommodative monetary policy to help its economy recover from a record earthquake on March 11.
The BOJ yesterday unveiled a 1 trillion yen, one-year loan program to companies affected by the quake and tsunami as board members downgraded their economic assessment for the first time since October.
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