Forex - Pound close to 9-month highs vs. dollar

The pound was hovering close to nine-month highs against the dollar on Wednesday as a U.S. government shutdown entered a second day with no signs of a resolution to political deadlock over federal funding. 

GBP/USD hit 1.6251 during U.S. morning trade, the session high; the pair subsequently consolidated at 1.6235, rising 0.24%.

Cable was likely to find support at 1.6127, Monday’s low and near-term resistance at 1.6259, Tuesday’s high and the highest since early January.

The dollar remained under pressure amid fears that the U.S. government 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.

Sentiment on the dollar was also hit 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 previous month’s figure was revised down to a gain of 159,000 from a previously reported increase of 176,000.

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 Markit U.K. construction purchasing managers' index ticked down to 58.9 in September from 59.1 in August. Economists had forecast a reading of 59.2.

The report said the latest expansion of construction employment was the sharpest since December 2007.

Sterling slipped lower against the euro, with EUR/GBP rising 0.26% to 0.8373.

The euro 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.

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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.

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U.S. stocks open lower after ADP data, political wrangling in focus

U.S. stock markets opened lower on Wednesday, after data showed that the U.S. private sector added fewer-than-expected jobs in September, clouding the outlook for the economic recovery, while lingering concerns over political wrangling in Washington also weighed.

During early U.S. trade, the Dow Jones Industrial Average fell 0.65%, the S&P 500 index declined 0.65%, while the Nasdaq Composite index shed 0.5%.

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

The previous month’s figure was revised down to a gain of 159,000 from a previously reported increase of 176,000.

Market players have closely been looking out for U.S. data reports recently to gauge if they will strengthen or weaken the case for the Federal Reserve to reduce its bond purchases.

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.

Meanwhile, investors remained cautious as worries over the impact of a U.S. government shutdown continued after Congress failed to reach an agreement on a budget bill.

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.

Moody's Investors Service warned last month that a failure to raise the debt limit would result in a worse outcome for financial markets than a government shutdown. 

In earnings news, Monsanto saw shares drop 2.7% after the world’s largest seed company reported a worse-than-expected fourth quarter loss. 

Meanwhile, aluminum giant Alcoa fell 2.5% after Deutsche Bank lowered its rating on the stock to “sell” from “hold”, citing weaker aluminum prices.

Across the Atlantic, European stock markets remained lower after Italy’s prime minister survived a confidence vote, while investors digested comments by European Central Bank President Mario Draghi.

The EURO STOXX 50 fell 0.4%, France’s CAC 40 shed 0.9%, Germany's DAX slumped 0.65%, while Britain's FTSE 100 declined 0.6%. 

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.

Meanwhile, Mario Draghi said ECB policymakers considered a rate cut, before leaving rates on hold at 0.5%.

Speaking at the ECB’s post-policy meeting press conference, Draghi said risks to the euro zone economy remain to the downside said the bank viewed the recovery as “weak, fragile and uneven” before reiterating that bank rates would remain at current or lower levels for an “extended period of time”. 

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

Meanwhile, in the U.K., data showed that activity in the U.K. construction sector slowed slightly in September, but remained close to August’s almost six-year high.

The Markit U.K. construction purchasing managers' index ticked down to 58.9 in September from 59.1 in August. Economists had forecast a reading of 59.2.

During the Asian trading session, Hong Kong's Hang Seng Index rose 0.45%, Australia’s ASX/200 Index ended 0.17% higher, while Japan’s Nikkei 225 Index closed down 2.17%.

Shares in Tokyo traded sharply lower as investors reacted to Prime Minister Shinzo Abe’s sales-tax increase and stimulus plan announced after markets closed on Tuesday.

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