Dollar down as debt default looms

SINGAPORE – The dollar weakened in Asian trade Monday as lawmakers in Washington struggle to agree a budget deal that will avoid a damaging debt default.

In Singapore morning trade, the greenback slipped to 98.28 yen from 98.59 yen in New York late Friday.

The euro rose to $1.3564 from $1.3546 but dipped to 133.30 yen from 133.55 yen. Japanese markets are closed for a public holiday.

Republicans and Democrats were unable to find a compromise after a rare Sunday session to hammer out a deal to reopen the federal government and raise the country’s borrowing limit before a October 17 deadline.

The government partially shut down on October 1 after lawmakers failed to agree a new budget.

Harry Reid, the Democratic Leader in the Senate, painted an optimistic picture of the dialogue late Sunday with Republicans, though nothing concrete was disclosed.

Failure to lift the debt limit by Thursday would leave the government unable to pay its bills or service its debts, leading to a devastating default that analysts warn will tip the global economy back into recession.

“So far, markets have not panicked because both parties have come out to reassure that they are working towards a compromise after every failed vote, keeping alive hopes for a last-minute deal,” DBS Bank said in a note.

The Singapore bank however held a dim view of any stop-gap measures to extend the deadline for the debt default.

“The Senate has reportedly taken over negotiations and is looking to extend the deadline to next March in exchange for watering down the next round of (public spending cuts) due next year,” it said.

“Even if a compromise can be reached, this will only provide a temporary relief for the US dollar, and sets the stage for more budget fights ahead of next year’s mid-term elections.”

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