The currency market saw small moves, generally speaking, on Thursday, as US 10-year Treasury yields moved toward a seven-week low and as the US federal government shutdown entered its third consecutive day.
Traders are generally sanguine that a full debt default will be avoided, as it is considered that it would be "catastrophic". However, a technical default may perhaps be worth keeping in mind as a possible scenario and market jitters might increase should such a scenario start to become likelier.
In that respect, it is worth noting that some degree of tensions in US one-month bill rates and in credit default swaps (CDSs) on US Treasuries were evident on Thursday.
However, and as James Mackintosh at the Financial Times pointed out on Friday morning, traders are likely just using CDSs as a cheap way to bet on market nerves, as in a real full-blown default CDS sellers might not even survive.
Credit default swaps (CDSs) on US Treasuries moved up by 44 basis points, versus the 65 seen in 2011, when Capitol Hill last faced gridlock.
In any case, the single currency continues to edge slightly higher. However, and as some strategists have been telling Sharecast over the last few weeks, a clear break above 1.37 would not seem to be on the cards given the fundamental situation of the Eurozone economy. One such voice is Ronnie Chopra's, who is Tradenext's Head of Strategy.
Time will tell. In any case, the euro/dollar pair yesterday rose by 0.33% to the 1.3590 dollar
"EUR-USD is likely to struggle further close to 1.36 today in the absence of any macro drivers. Hence, trading will probably be mostly chart-driven, with investors paying attention to both the 1.3570 and 1.3660 levels," Unicredit told clients on Friday morning. The year's highs stand at 1.3708.
Meanwhile, back in Eurozone news, ECB governing council member Christian Noyer remarked that he currently does not believe that a new long-term liquidity operation is currently necessary.
Portuguese long-term sovereign bond yields came off last night before the government's presentation of the results of the reviews of the country's financial aid programme. Late in the evening, Lisbon announced that it has successfully passed the Troika's ninth review.
France and Spain held successful Treasury debt auctions on Thursday.
In an interview with ITV Anglia broadcast on Wednesday, Bank of England Governor Mark Carney said: "[...] We will take those responsibilities very deliberately, very prudently and act in a proportionate fashion in a way that is consistent, that intends to be consistent, with a sustainable housing market [and the BoE has the tools to ensure that] it isn't in a boom and then a bust phase."
Those remarks may explain why cable (sterling/US dollar) was able to overcome US dollar weakness to stand 0.40% lower by the close at 1.6236.
Lastly, the dollar/yen fell by 0.19% to the 97.067 mark.