USD/JPY fell from three-week highs on US debt agreement

US dollar plunged against the Japanese yen on Thursday, falling from three-week highs, after a short-term deal on US debt has been passed by the Congress, but however, it did not put an end to political uncertainty in the country.

Having risen as high as 99.00 at 0:00 GMT, the highest point since September 27th, USD/JPY cross tumbled to a session low at 97.82 at 8:00 GMT, after which consolidation followed at 98.03, falling 0.74% for the day. Support was likely to be received at October 10th low, 97.47, while resistance was to be met at current session high, 99.00.

The greenback gained strength versus peers initially, after the vote on US debt last night passed by wide margins – an 81-18 vote in the Democratic-led Senate and a 285-144 vote in the Republican-controlled House. It allows the United States to avert default on its obligations and end the partial government shutdown. US President Barack Obama signed the bill earlier today, according to a White House statement, with this measure allowing government workers return to their jobs as soon as today.

With the vote passed, a new set of deadlines has been set. The first deadline, for budget negotiations until December 13th, set up more rounds of political debates over taxes and spending on programs, including Social Security and Medicare. In addition, the reached agreement provides government funding at Republican-backed spending levels through January 15th 2014, and also suspends the debt ceiling through February 7th.

“People were primed for a move from Congress today to lift the debt ceiling,” said Desmond Chua, a Singapore-based market analyst at CMC Markets, cited by Bloomberg. “Looking forward, it leaves us a short time before another possible debacle. The 99 round handle for dollar-yen is a tough one to overcome, looking at how it’s been facing that resistance since the end of September.”

However, concerns appeared over the possible consequences to economy after 16 days of partial shutdown. Uncertainty resulting from continued political disruption suggested a slower pace of monetary stimulus tapering by the Federal Reserve Bank. At the same time, a weakened consumer confidence may lead to “more of a drag” on economic growth than expected during the final quarter of the year. Another concern was the fact that this temporary solution on debt does not resolve the underlying budgetary issues, which divide Republicans and Democrats in the United States.

Meanwhile, The Federal Reserve Bank of Philadelphia’s manufacturing index probably decreased to a reading of 15 in October from 22.3 during the preceding month, according to the median estimate by experts, participated in a survey by Bloomberg News. The official report is scheduled for release later on trading Thursday. Values that exceed zero are usually considered as an indication for expansion in activity. It became clear, according to a report on October 15th, that the New York Empire State manufacturing index fell to a value of 1.5 in October, reaching its lowest point in five months.

Reports, which have been delayed due to the partial shutdown, including the September non-payrolls data, were to be released in the coming days and markets might start to rebuild positions with bets on dollar gains against the yen, pound and euro, according to BNP strategists.

Elsewhere, the yen was higher against the euro, with EUR/JPY cross sliding 0.13% on a daily basis to trade at 133.51 at 9:03 GMT. GBP/JPY pair was dipping a mere 0.01% to trade at 157.57 at 9:04 GMT.