Rumours from Washington lift dollar

The US dollar has finally shown a little bit of strength, but its next steps depend heavily on news from Washington.

Currency pairing EUR/USD has had a solid trend in place for some time: the euro has strengthened against a weakening dollar, triggered by the currency markets’ anticipation of a US default and the subsequent downgrades that would cause.

Finally, however, the noises out of Washington have begun to sound a little more encouraging, as rumours abound that the two parties may be entering negotiations to raise the debt ceiling enough to buy them a four- to six-week window to find a longer-term solution. Despite the cloak-and-dagger nature, these rumours have been enough to temporarily lift the dollar and reverse the recent trend.

One of the problems currency traders have is that the US government shutdown has seen the flow of economic data run dry, and without these key indicators it has become hard to form an accurate assessment of the generic health and strength of the dollar. The next 48 hours could see the picture clear up. 

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