EUR/USD soared, as an agreement on US debt has been reached

The euro gained ground against the US dollar on Thursday, after the US Congress passed a bill to end the partial government shutdown and raised nations debt limit hours before the deadline.

EUR/USD climbed sharply to a session high at 1.3611 at 7:30 GMT. Support was likely to be received at psychological level of 1.3500, while resistance was to be met at October 4th high, 1.3631.

The greenback strengthened 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.

However, concerns arose over the possible consequences to economy after 16 days of partial shutdown. Uncertainty resulting from continued political disruption has a “silver lining,” because it suggests a slower pace of monetary stimulus tapering by the Federal Reserve, according to Russ Koesterich, the chief investment strategist for BlackRock Inc., Bloomberg reported. On the other hand, 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.

Additional selling impulse for the greenback came after it became clear that a Chinese ratings agency Dagong reduced its estimate of the US credit rating from “A” to “A-“. The dollar index fell 0.3% to levels below 80.130.

Meanwhile, the euro was steady against the pound, with EUR/GBP cross gaining 0.04% to trade at 0.8489 at 8:04 GMT. EUR/JPY pair, on the other hand, was losing 0.19% on a daily basis to trade at 133.42 at 8:07 GMT. The US dollar has dropped 0.7% during the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The euro has appreciated 0.9%.