Traders working on the floor of the New York Stock Exchange yesterday.
LONDON: The dollar slid to an eight-month low against the euro and stock markets diverged yesterday as investors weighed up the last-gasp deal in Washington to avert a disastrous US default.
European stocks began the day down significantly despite the 11th-hour deal, but later recouped much of the losses.
London’s benchmark FTSE 100 index ended the day with a gain of 0.07 percent to 6,576.16 points, but the CAC 40 in Paris slid 0.10 percent to 4,239.64 points and Frankfurt’s DAX 30 gave up 0.27 percent to 8,811.98 points.
“The age old city adage of buy the rumour and sell the fact was perfectly demonstrated this morning, with the recent rally on resolution whispers reversing as final confirmation of a deal hit the headlines,” said Alex Young, a trader at CMC Markets UK.
Wall Street also quickly moved on from the Washington deal, shifting attention to corporate earnings, with a 6 percent plunge in IBM’s shares after it reported a sharp fall in third-quarter sales.
The Dow Jones Industrial Average shed 0.33 percent to 15,323.77 points in midday trading. But the broader S&P 500 added 0.23 percent to 1,725.48 points, and the tech-rich Nasdaq Composite rose 0.30 percent to 3,850.96.
Global markets had been on tenterhooks over the US government impasse, which saw Democrats refuse to give in to Republican demands for a new budget to include cuts to President Barack Obama’s flagship healthcare bill.
But with just hours to go before a Thursday deadline to raise the debt ceiling, legislators agreed to reopen a government that was partially shut down on October 1, while extending the debt ceiling until the new year, and it was signed by Obama in the early hours.
Some investors breathed a sigh of relief, but the weeks of bitter rows on Capitol Hill that called into question Washington’s credibility and the prospect of a repeat at the beginning of 2014 tempered optimism. But the US government’s borrowing costs fell on the news, with the 10-year Treasury yield falling to 2.62 percent from 2.67 percent late Wednesday.
However the dollar took a hit, with the euro rallying to reach its highest level against the greenback in over eight months, climbing to $1.3682. It later pulled back to $1.3663, still up sharply from $1.3560 late in New York on Wednesday.
CMC Markets analyst Matt Basi said the drop in the dollar was coming as “markets price in comments from global credit ratings agencies” on US government debt.
But most market participants “are able to decipher for themselves that when a government comes within hours of a default, their credit might not be as good as it used to be,” he added.
The dollar also gave up ground versus the yen, falling to 97.86 yen from 99.01 yen late on Wednesday.
The pound rose to $1.6161 from $1.5945 the previous evening, and to 1.1835 euro from 1.1783.
The price of safe-haven gold meanwhile hit a one-week high point at $1,321.38 an ounce on the London Bullion Market, driven also by the weaker dollar. It later fell back to $1,319.25, up from $1,278.25 on Wednesday.
Asian equities were broadly positive, with Tokyo closing up 0.83 percent, Seoul adding 0.29 percent and Sydney climbing 0.38 percent in value. But Hong Kong lost 0.57 percent and Shanghai closed down 0.21 percent.