© Reuters.
Investing.com – The US dollar traded higher in early European hours on Wednesday following hawkish rhetoric from a number of Federal Reserve officials and as the debt ceiling continued to battle in Washington.
At 03:10 ET (07:10 GMT), the euro, which measures the greenback against a basket of six other currencies, was up 0.2% at 102,560.
The US currency has recently benefited from the uncertainty surrounding the possibility of default in the US if a deal to raise the country’s borrowing limit is not implemented.
President Joe Biden met with Republican House Speaker Kevin McCarthy on Tuesday, and although there was encouraging noise about a possible deal, nothing was decided.
Biden warned that no deal is likely to push the US economy into recession, but it will also have a very negative impact globally, so the dollar is gaining safe haven status.
“The highly likely negative impact on risk sentiment and money markets means that upside risks for the dollar and yen are very significant in such a scenario,” ING analysts said in a note.
The dollar on Wednesday also underpinned hawkish comments by Federal Reserve policymakers this week, which suggested the US central bank could still raise interest rates again.
Interest rates rose last week for the tenth time in a row, but it hinted that it may be about to pause its aggressive policy tightening as it studies incoming economic data.
“At this point, based on the data I have so far, given the complexity of inflation, I can’t say I’m at the level of the federal funds rate where the next step is also likely to be an increase,” Cleveland Fed President Loretta Mester said on Tuesday.
It fell 0.1% to 1.0856, ahead of the release of the final April data for the Eurozone, which is expected to show continued higher prices.
ING added: “EUR/USD should remain mainly driven by the USD leg and the US debt frontier saga: we see 1.0800 as a key indicator of support, and a break below this level is likely to indicate a significant deterioration in market sentiment.”
It fell 0.3% to 1.2454, with the pound unexpectedly remaining under pressure in March, raising the possibility that interest rate increases will be halted at its next meeting in June.
It rose 0.3% to 136.79, after reaching a two-week peak overnight, and fell 0.1% to 0.6649, while it rose 0.2% to 6.9928, with the yuan retreating to its weakest level since mid-December on the back of increasing bets to be made by the People’s Bank of China. Need to further ease monetary policy to support economic growth.