Investing.com – The US dollar rallied higher in early European trade on Tuesday, staying close to a two-month peak, as traders digested the prospect of a Fed rate hike as well as the passage of the US debt ceiling deal through congressional division.
At 03:05 ET (07:05 GMT), the dollar, which measures the greenback against a basket of six other currencies, rose 0.2% to 104.323, after hitting a two-month high of 104.420 earlier in the session. .
US President Joe Biden and Republican Congressman Kevin McCarthy reached an agreement over the weekend to suspend the debt ceiling through 2025 and cap some federal spending in order to prevent a default on US debt.
That deal now has a limited amount of time to work its way through a narrowly divided Congress before the US Treasury runs short of funds to cover all of its liabilities, and it is sure to face opposition from the extremes of both parties.
The dollar held steady on Monday, when the US and UK markets closed, and is on track to post a monthly gain of just under 2.5% as traders weigh in on the possibility that US interest rates will remain elevated for longer.
The monthly report is due to be widely released on Friday and is expected to show that the country’s labor market remains resilient, with 180,000 jobs expected to be created in May.
Moreover, inflation remains elevated, resulting in a 60% chance of a 25bp hike from the Fed in June, to support the dollar.
Elsewhere, it fell 0.3% to 1.0691, with the euro feeling the impact of dollar strength, while the downside surprised, rising 3.2% yoy in May, below expectations of 4.4%.
It rose to 1.2345, while it traded down 0.1% to 140.41, after the pair earlier touched a six-month high as US Treasury yields rose.
It rose slightly to 0.6523, while it rose 0.4% to 7.0918, hitting a new six-month high after the People’s Bank of China lowered the midpoint rate for the day, providing pessimistic signals to the market.
It rose 1.4% to 20.2807, with the lira still very weak after Tayyip Erdogan’s re-election as Turkey’s president, suggesting interest rates will remain low despite rising inflation.