FOREX-Dollar falls as investor focus shifts to U.S. economy, Fed

Reuters

* U.S. House, Senate pass bill to avert debt default

* Dollar index down 0.2 percent, U.S. bond yields down

* U.S. currency pulls back from 3-week high against yen

By Anirban Nag

LONDON, Oct 17 (Reuters) - The dollar fell against a basket

of currencies on Thursday as investors turned their focus to the

economic impact of the U.S. debt impasse and two-week government

shutdown.

After Congress passed a last-minute deal to avert a debt

default for now, analysts said the weeks of uncertainty that

knocked investor and business confidence would have dented the

world's largest economy's growth prospects.

That would keep the Federal Reserve from withdrawing

monetary stimulus at least until the beginning of next year. As

such U.S. Treasury yields slipped and

dragged the dollar down against most major currencies, including

the yen.

The dollar index measuring its value against a basket of

currencies fell 0.2 percent to 80.304, off a one-month

high of 80.754 struck on Wednesday.

The dollar fell 0.3 percent to 98.40 yen, pulling back from

a three-week high of 99.01 yen set earlier in the day.

The dollar lost momentum after rising initially in

anticipation of an end to the fiscal impasse, falling to

intraday lows versus the yen after the U.S. House of

Representatives approved a deal already passed by the Senate.

The deal offers only a temporary fix and does not resolve

the fundamental issues of spending and deficits that divide

Republicans and Democrats.

The spending measure, which was signed by President Barack

Obama, funds the government until Jan. 15 and raises the debt

ceiling until Feb. 7. That means Americans face the possibility

of another government shutdown early next year.

"We would expect this impasse to shave off part of

fourth-quarter growth and hurt consumer confidence especially

from the government sector," said Simon Derrick, head of

currency strategy at BNY Mellon.

"What this does is push back expectations of Fed tapering to

early 2014 and this is dollar negative."

The Fed's Beige Book report on Wednesday suggested

confidence had been dampened somewhat by uncertainty caused by

budget battles in Washington.

The dollar's broad losses saw the euro rise 0.2 percent to

$1.35570 and underpinned higher-yielding and growth

linked currencies including the Australian and New

Zealand dollars near recent highs.

The Australian dollar was trading at $0.9550, not far from a

four-month high of $0.9574 struck on Wednesday. With the Fed

likely to keep pumping in dollars at $85 billion a month, carry

trades - where investors borrow in a low yielding currency to

buy a higher yielding or riskier one - would also gather pace.

"With soft but positive economic growth, and investors ever

more confident that a Fed exit isn't around the corner, we

remain skewed towards selective bullish risk positions," Societe

Generale analysts said in a note.

"They are a green light for risk takers to position for a

recovery of the G-10 carry trade."

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