Cooperation between otherwise feuding U.S. political parties prompted the world's reserve currency to mark its first day of gains in five trading sessions on Wednesday, according to Bloomberg.
Political leaders reached agreement on a budget pact that might influence the U.S. Federal Reserve to move forward with its plans to taper economy-spurring measures. The purchase of debt and assets by the central bank floods the market with the greenback, which in turn waters down the value of the monetary unit.
Policy makers with the U.S. Federal Reserve are slated to convene two days of meetings next week, when some analysts anticipate the body might give serious consideration to reducing monetary stimulus.
"This budget deal is encouraging news that removes the threat of another shutdown," chief currency strategist for the northern hemisphere Richard Franulovich with Westpac Banking Corp. in New York told the news source on Wednesday. "With the jobs picture also showing sustained improvement, it should help the dollar."
Dollar Index edges up
The U.S. Dollar Index, a gauge of the value of the greenback against competing monetary units, moderately rose on Wednesday by 0.2 percent after having scraped its lowest value since early November during the Tuesday trading session. The greenback edged down 0.1 percent against the shared currency of the European Union and the Japanese yen.
With the Federal Open Market Committee slated to convene next Tuesday and Wednesday, investors, analysts and additional observers are speculating about whether the body of policy makers will move forward with slashing policy earlier than planned. The economy-spurring measure is more colloquially known as quantitative easing, or QE.
"This looks like a deal that, at the margin, adds to the probability that the Fed will feel confident in starting the QE tapering process next week," global co-head of currency strategy Ray Attrill with National Australia Bank Ltd. in Sydney told the news source on Wednesday. "I would say it's dollar-positive."
Global market applaud U.S. deal
Reuters reports the deal that political leaders logged on Tuesday was a welcome development for global markets.
As host of the world's biggest economy, concerns were spreading that the U.S. government might be barreling toward another partial shutdown early next year. The leaders negotiated a two-year pact.
Two positive byproducts can rise from the pact – lingering questions about the government's strength hovered over markets and the pact serves as a strong backdrop to next week's policy makers' summit.
"It certainly does appear that a window of opportunity could be opening up for the Fed to act next week without a sharp market reaction," strategist Michael Hewson with CMC Markets told Reuters on Wednesday. "The only question remaining is as to whether they will avail themselves of it."
Data that the U.S. has released as of late also tends to support the idea of the FOMC slashing stimulus measures, Reuters reports.
MarketWatch reports the nation does not plan to release significant data on Wednesday.
End of year in sight
With less than three weeks remaining in the year, monetary units might be impacted by an end-of-year surging phenomenon, chief currency strategist Thomas Stolper with Goldman Sachs told MarketWatch.
Such a phenomenon was largely undercover in Europe during the past several years because of the damaging tendencies of the sovereign debt crisis, Stolper said.
"European currencies do have a tendency to strengthen toward the end of the year," the chief currency strategist told MarketWatch. "If every exporter starts to hedge the exposure for the next year at the end of the previous year, then you would have more demand for the currencies where you have a stronger trade surplus. That would benefit the euro."
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