Dollar Weakens as Bonds Rise With Gold; Stocks Pare Declines

FRANKFURT (Oct 17)  The dollar weakened the most in a month against the euro, bonds rose and gold gained as disruptions from the U.S. debt-ceiling debate prompted speculation the Federal Reserve will maintain stimulus. European stocks slipped from a five-year high.

The dollar slid 0.7 percent to $1.3626 per euro at 6:34 a.m. in New York. Treasury 10-year note yields fell four basis points to 2.63 percent and the yield on similar-maturity German bunds dropped three basis points to 1.90 percent. Gold jumped 2 percent to $1,307.57 an ounce. The Stoxx Europe 600 Index decreased less than 0.1 percent, paring earlier losses. Standard & Poor’s 500 Index futures retreated 0.1 percent after the U.S. gauge closed within 0.3 percent of a record yesterday.

President Barack Obama signed into law a measure ending the 16-day government shutdown and extending the nation’s borrowing authority until early next year. BlackRock Inc. and Pacific Investment Management Co. say the Fed will postpone tapering its bond purchases as a result of the debt-ceiling debate. The U.S. will issue its jobless claims report today and companies including Goldman Sachs Group Inc. and Google Inc. are scheduled to release earnings.

“Tapering’s pretty much off the table until at least early next year,” said Victor Thianpiriya, an analyst at Australia & New Zealand Banking Group Ltd. in Singapore. “The market’s going to tread cautiously because all the U.S. government’s done is kick the can down the road.”

Dollar Slides

The dollar fell versus all but one of its 16 major counterparts, dropping most against the Swiss franc. The U.S. currency tumbled 0.9 percent to 97.86 yen.

The pound strengthened the most in four weeks against the dollar, advancing 0.8 percent to $1.6077, after a report showed U.K. retail sales increased more than analysts forecast in September.

Congress acted the day before U.S. borrowing authority was scheduled to lapse as lawmakers engaged in their fourth round of fiscal brinkmanship in less than three years. Lawmakers didn’t resolve any of their long-term divides on fiscal policy and will have to return to the same issues over the next four months.

“Because of the disruption, because of the uncertainty, what’s likely to happen is a slower pace of tapering,” Russ Koesterich, the chief investment strategist at BlackRock in New York, said in an interview on Bloomberg Television. BlackRock is the world’s largest money manager with $4.1 trillion of assets.

Dagong Global Credit Rating Co., one of China’s four biggest credit-rating companies, cut its local and foreign- currency assessments of the U.S. to A- from A. China has the largest foreign holdings of Treasuries, and the latest monthly U.S. government figures showed it increased its total in July. Fitch Ratings put the U.S. on watch for a possible downgrade on Oct. 15.