© Reuters.
Investing.com – The U.S. dollar fell in early European trade on Friday, but held near a two-month high as strong employment data and optimism that a U.S. debt default could be avoided suggested the Federal Reserve would maintain tight monetary policy for longer.
At 02:55 ET (06:55 GMT), the dollar, which measures the greenback against a basket of six other currencies, was down 0.2% at 103.267, just below Thursday’s two-month high of 103.630.
The dollar index is on track to record gains of less than 1% this week as news of constructive talks to end the current debt ceiling impasse in Washington fueled optimism that an agreement could be reached, thus avoiding a devastating debt default.
This has cast a strong spotlight back on what he will decide on future interest rate moves.
Concerns about the country’s banking sector appear to have dissipated, and inflation data recently was flat while Thursday indicated a still-tight labor market, with fewer Americans filing new claims for unemployment benefits than expected.
A number of Federal Reserve officials expressed concerns this week that U.S. inflation has not cooled fast enough to allow the central bank to halt its June rate hike cycle, in the president’s speech later on Friday.
Fed funds futures prices show the Fed could raise interest rates by another 25 basis points next month, compared with a chance of just 10% a week ago.
It rose 0.1% to 1.0781, rebounding from a seven-week low of the previous session after German producer prices for April came in stronger than expected, adding to expectations of a further rate hike than before.
Germany’s index rose 0.3% in April, compared to an expected decline of 0.5%, while the year-over-year figure rose 4.1%, ahead of expectations of 4.0%.
The vice president of the European Central Bank said Thursday that he is particularly concerned about accelerating inflation in service industries.
His colleague is scheduled to speak later in the day and is likely to deliver another optimistic message about increasing borrowing costs until they come down sustainably.
It rose 0.1% to 1.2417, bouncing back slightly after struggling against dollar strength overnight.
The BoE policymaker is due to speak later in the session and could provide sterling with a lift if he confirms that the past 12th week was not the last as the job market remains tight and inflation is very high.
It fell 0.4% to 138.11 after data showed that Japanese consumer inflation rose again towards a 40-year high in April, adding pressure on Japan to adjust its ultra-loose monetary policy.
It rose by 0.4% to 0.6645, while it fell by 0.1% to 7.0295, with the yuan earlier reaching a five-month low as the pair remains above the psychologically important 7 level.