Dollar weaker as U.S. shutdown, jobs report weighs

The dollar fell to fresh five-week lows against the yen on Wednesday and was under pressure against the other major currencies as a combination of political deadlock in the U.S. and a weak private sector jobs report weighed.

During U.S. morning trade, the dollar fell to session lows against the yen, with USD/JPY down 0.79% to 97.25.

The dollar weakened as a U.S. government shutdown entered a second day with no signs of a resolution to an impasse over federal funding. Investors were fearful that the shutdown would curb the economic recovery and prompt the Federal Reserve to maintain its stimulus program for longer.

Last month the U.S. central bank took markets by surprise with a decision to keep its stimulus program on track, saying it wanted to see more evidence of a sustained economic recovery before tapering.

Markets were also mulling over how the political deadlock in Washington will impact on negotiations to raise the U.S. debt ceiling, which the U.S. Treasury Department has estimated will be reached by October 17.

The dollar extended losses against the yen after a report showed that the U.S. private sector added fewer-than-expected jobs in September, clouding the outlook for the economic recovery. 

Payroll processing firm ADP said non-farm private employment rose by a seasonally adjusted 166,000 in September, below expectations for an increase of 180,000. 

The euro rose to eight-month highs against the dollar, with EUR/USDclimbing 0.47% to 1.3588.

The single currency was boosted after Italian Prime Minister Enrico Letta survived a vote of confidence in parliament on Wednesday, after Silvio Berlusconi dropped his opposition to the coalition, in a surprise U-turn after announcing Saturday that he was pulling his ministers out of the government.

Elsewhere, the European Central Bank left interest rates on hold at 0.5%, in a widely expected decision.

ECB President Mario Draghi said risks to the euro zone economy remained to the downside, before reiterating that bank rates would remain at current or lower levels for an “extended period of time”, given the subdued inflation outlook and low levels of growth in the region.

Draghi also reiterated that the ECB remains ready to extend a third round of ultra-cheap loans to banks, in order to safeguard the recovery.

The dollar was trading close to nine-month lows against the pound, withGBP/USD up 0.20% to 1.6228.

Sterling remained supported after data released on Wednesday showed that activity in the U.K. construction sector slowed slightly in September, but remained close to August’s almost six-year high.

The dollar was hovering just above 19-month lows against the Swiss franc, with USD/CHF falling 0.43% to 0.9017.

Elsewhere, the greenback was broadly higher against its Australian, New Zealand and Canadian counterparts, with AUD/USD down 0.35% to 0.9365, NZD/USD losing 0.18% to trade at 0.8260 and USD/CAD rising 0.12% to 1.0339.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.40% to an eight-month low of 79.96.