Dollar edges up as market looks to U.S. debt ceiling talks, inflation data By Reuters

Written by Ian Withers

LONDON (Reuters) – The dollar rose against major currencies on Tuesday as traders waited for clarity on U.S. debt ceiling talks and fresh inflation data to get a clearer picture of the economic outlook and the Fed’s likely path to raise interest rates.

Tuesday’s data – showing China’s imports contracted sharply in April from a year earlier while exports grew more slowly than in March – had a limited impact on currencies, but contributed to broad-based risk-off moves across markets.

Closely watched US inflation data on Wednesday will likely help set the tone for markets, after stronger-than-expected jobs data last week as the Federal Reserve considers how quickly it can tighten interest rates as prices rise.

Analysts said any Fed policy adjustments would have to be weighed against the backdrop of recent turmoil in the US banking sector and the political impasse in Washington over resolving the country’s debt ceiling and avoiding default.

“Overall, the data highlights that it is not yet agreed that the Fed will not raise interest rates further although we agree with market rates that there is a bigger hurdle now especially with the upcoming US debt ceiling showdown,” currency analysts said. MUFG said in a note.

The Federal Reserve’s quarterly survey of bank loan officials showed that while credit conditions for US businesses and households continued to tighten at the start of the year, that was most likely due to higher interest rates.

The closely watched poll was among the first gauges of sentiment in the banking sector since the recent string of bank failures, sparked by the collapse of a Silicon Valley bank in March.

Against a basket of currencies, the rate rose 0.1% to 101.56, but remained near its recent lows as traders eye a peak in US interest rates.

The euro fell 0.3 percent to $1.09750.

The Japanese yen rose 0.1% to 134.955 against the dollar, boosted by comments from Bank of Japan (BOJ) Governor Kazuo Ueda that the central bank may end its yield curve control policy and start shrinking its balance sheet.

Elsewhere, sterling last bought $1.25975, down 0.1%, ahead of the central bank’s monetary policy meeting on Thursday.

The Bank of England appears ready to raise interest rates to 4.5%, as it tries to fight the highest rate of inflation in Western Europe.