* U.S. House, Senate pass bill to avert debt default
* U.S. currency pulls back from 3-week high against yen
NEW YORK, Oct 17 (Reuters) - The dollar slid against a
basket of currencies on Thursday as a deal to end the U.S. debt
stalemate in Congress prompted investors to focus on the
economic impact of the government shutdown and the likelihood
that Federal Reserve stimulus will stay in place.
Analysts said the two weeks of uncertainty that knocked
investor and business confidence would have dented the growth
prospects of the world's largest economy.
That would likely keep the Fed 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
In the first wave of data to be released after the
government returned to work, the Labor Department said the
number of Americans filing new claims for unemployment benefits
dropped from a six-month high last week..
"The U.S. dollar is the worst performing currency as
attention shifts from the U.S. debt debacle to incoming Fed
rhetoric," said Christopher Vecchio, currency analyst, at
FXCM-owned DailyFX.com in New York.
The dollar index was down 1 percent at 79.688, well
off a one-month high of 80.754 struck on Wednesday. Against the
yen, it lost 0.9 percent to trade at 97.83 yen, pulling back
from a three-week high of 99.00 yen set much earlier in the
global day. The dollar trough on Thursday against the yen was
the lowest in a week and it was the largest percentage fall in a
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 in London.
"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. Gold jumped 3 percent on Thursday
on the belief the Fed will delay tapering.
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.
Though not followed widely outside China, moves from other
ratings agencies will concern investors.
The dollar's broad losses saw the euro rise 1 percent to
$1.3664 with a peak of 1.3681, its highest since early
February. It was the largest percentage gain in a month.
It also pushed growth-linked currencies including the
Australian and New Zealand dollars to fresh
The Australian dollar rose past reported option barriers to
hit a four-month high. The New Zealand dollar soared to a
Of the 36 most actively traded currencies against the dollar
month to date, just four are lower, another 31 are higher
against the dollar and one unchanged.
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
favor 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."