* U.S. House, Senate pass bill to avert debt default
* Dollar index down 0.7 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 marked a deal to end the
U.S. debt stalemate by focusing on the economic impact of the
Analysts said the two 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
Adding to the dollar's woes was Chinese rating agency
Dagong, which downgraded the United States to A- from A and
maintained its negative outlook.
The dollar index was down 0.75 percent at 79.877,
well off a one-month high of 80.754 struck on Wednesday. Against
the yen, it lost 0.8 percent to trade at 97.95 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 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.
"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 0.7 percent to
$1.3638 not far from a eight-month high of $1.36465
struck on Oct. 3.
It also pushed growth-linked currencies including the
Australian and New Zealand dollars to fresh
The Australian dollar rose past reported option barriers at
$0.9600 to hit a four-month high of $0.9603. The New Zealand
dollar soared to a five-month high of $0.8467.
With implied volatilities - a gauge of
how choppy currency moves are likely to be - anchored, and
expectations that Fed is likely to keep pumping in dollars at
$85 billion a month, analysts said conditions were turning in
favour of dollar-funded carry trades.
In carry trades, investors borrow in a low yielding currency
to buy a higher yielding or riskier one to earn better returns.
"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."
- Budget, Tax & Economy