Dollar under pressure as budget talks go on

NEW YORK (MarketWatch) — The dollar edged down against some rivals on Monday as the U.S. approached its debt limit with congressional leaders trying to work out a deal on Capitol Hill.

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"We could get a deal at any moment, or trundle into the debt ceiling sometime after Oct. 17," said Kit Juckes, a strategist at Societe Generale, in a research note.

The euro (EURUSD)  inched up to $1.3566 from $1.3551 late Friday.

Senate Majority Leader Harry Reid said he was "very optimistic" on a deal that would raise the debt ceiling and end the government shutdown, now in its 14th day. Reid's comments helped support the dollar (USDJPY) against the yen, fetching ¥98.54 versus ¥98.48 late Friday.

A meeting between President Barack Obama and leaders in Congress was postponed to give the Senate more time to work toward a solution. The U.S. will hit the debt ceiling on Thursday unless Congress raises the limit. A failure to raise the debt ceiling could trigger a U.S. default, as the nation would be unable to borrow money to fulfill its obligations.

"The U.S. debt story and, more importantly, the immediate consequence for monetary policy — a likely delay of the Federal Reserve's tapering as well as a possible enhancement of forward guidance under [Janet] Yellen next year — will keep the [euro] supported in the near term," Frederik Ducrozet, a senior economist at Credit Agricole Corporate and Investment Bank, said in emailed comments.

The Federal Reserve currently buys $85 billion a month in mortgage and Treasury debt as part of its efforts to spur the economy, and many had expected the central bank to slow those purchases this year. But a prolonged shutdown, which prevents the release of closely watched labor-market data, could push out expectations for a step down in monetary stimulus.

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The ICE dollar index (DXY) , a measure of the greenback's strength against six other currencies, edged down to 80.296 from 80.375 late Friday.

The WSJ Dollar Index, (XX:BUXX) , a rival measure that pits the dollar against a broader basket, declined to 72.69 from 72.77.

The Eurogroup, the group of euro-zone finance ministers, met in Luxembourg on Monday. Jeroen Dijsselbloem, Eurogroup president and Dutch finance minister, said in a press conference the group would discuss Ireland and Spain's exits from the international bailout program at the next meeting in November, including "whether accompanying measures are needed to smooth the transition."

Ireland's Finance Minister Michael Noonan on Saturday said the country had substantial cash reserves that could be used in a crisis after its exit from the international bailout. His comments suggested that Ireland might not need a safety net, such as a precautionary line of credit, after the country receives the last of its bailout loans. "The Irish finance minister is sounding optimistic just like he should be," said Ducrozet of Credit Agricole Corporate and Investment Bank.

Olli Rehn, European Commissioner for Economic and Monetary Affairs, said U.S.politicans could learn from the recent budget compromise in the Netherlands. "It is high time for U.S. politicians to go Dutch," he said in the press conference . "We urgently need to see a similar victory for responsibility in Washington in order to not inflict serious damage on the world economy and jeopardize, also, the nascent recovery underway now in Europe."

The British pound (GBPUSD)  rose to $1.5991 from $1.5955 late Friday.

In China, consumer prices rose faster than expected in September. The consumer price index jumped 3.1% last month from a year earlier. The index posted a 2.6% increase in August. Wholesale prices, measured by the producer price index, declined 1.3% in September from the year-ago period.

Separately, Chinese exports declined 0.3% in September from a year ago, the weakest performance in three months, according to data released Saturday. The decline came as a surprise, as economists had expected an increase of 6%. "Poor trade data in China are a reminder of the headwinds to global trade," said Juckes of Societe Generale.

The Australian dollar (AUDUSD)  rose to 94.99 U.S. cents from 94.66 U.S. cents late Friday.