Government dysfunction has pushed the value of the U.S. dollar near its lowest point of the year against the euro. Meanwhile, the price of U.S. Treasury debt has skyrocketed to its highest point since January.
The Wall Street Journal noted on Friday:
Yields on the 10-year Treasury note, which move inversely to prices, touched 2.538%, the lowest level since July 24, according to CQG. The dollar continued its slide against major rivals, including the euro, the yen and the pound. The euro recently bought $1.3686 from $1.3676 late Thursday, while the pound fetched $1.6186 from $1.6165. The greenback traded at ¥97.71 from ¥97.93.
As a result of the government shutdown’s effect on dollar value and debt prices, the Federal Reserve’s easy money policy is expected to continue beyond December, when the Fed was initially expected to begin the process of tapering government stimulus efforts. Instead, the central bank is likely to continue pumping until March 2014.
As the dollar continues to slip, policymakers and investors in China and Japan have reportedly begun making plans to distance themselves from the dollar to ensure that Washington’s dysfunction doesn’t impair their own economic viability.
“We’re glad a deal has been struck,” said a Japanese policymaker Reuters. “But the uncertainty will remain and it will be the same thing all over again early next year.”
Last week, China made headlines when officials in the nation urged the international community to replace the dollar as the international reserve currency.
“As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world,” China’s official state-run news agency, Xinhua, said in an English-language commentary before the U.S. Congress came to a temporary budget agreement.
Since 2009, China has been calling for a world reserve currency replacement for the dollar. It has also been taking steps to make the yuan, its own currency, a viable alternative.
China holds more than $1.3 trillion U.S. Treasury debt.