© Reuters. FILE PHOTO: US dollar and euro banknotes are shown in this illustration taken on July 17, 2022. REUTERS/Dado Rovik/Illustration
Written by Tom Westbrook and Joyce Alves
LONDON (Reuters) – The dollar rose on Wednesday, benefiting from its safe-haven status amid risks of a U.S. debt default, and as traders cut bets on a Federal Reserve rate cut anytime soon after strong U.S. consumer spending data.
US President Joe Biden and senior congressman, Republican Kevin McCarthy, are close to a deal to raise the US debt ceiling, but nothing has been reached yet.
Biden said any default would lead to a recession in the economy, but investors also fear the impact could be negative globally.
Against a basket of other currencies, including the euro, the yen and the British pound, the index rose 0.25% to 102.86, after earlier touching its highest level since early April.
It rose 0.5% against the yen to a two-week high of 137.17 and 0.15% against the pound to $1.2469, after hitting its highest level against the British currency since April 26.
“The crushing blow to the number one economy in the world can only have negative shock waves for the global economy, reduce risk appetite, which will thus become a safe event,” said Jane Foley, a strategist at Rabobank.
Expectations of near-term US interest rate cuts were dampened by the strong increase in consumer spending in April, and comments from Federal Reserve officials.
Chicago Fed President Austin Goolsby said it’s “too early to talk about rate cuts,” and Cleveland Fed President Loretta Mester said rates are not yet at the point where the central bank can remain steady, given for stubborn inflation.
The pricing of interest rate futures does not mean there is no chance of a rate cut in June, down from about 17% chance seen a month ago.
“We expect some modest increases in the dollar as markets continue to price in interest rate cuts,” said Joe Capurso, strategist at Commonwealth Bank of Australia (OTC). “A rate hike is possible this year, although the hurdle is significant.”
The euro fell to a six-week low against the dollar, down 0.3% at $1.0831.
Eurostat said on Wednesday that inflation in the eurozone accelerated last month, confirming preliminary data pointing to increased price growth among the 20 countries that share the euro.
which has been under pressure since the election results, left the possibility of President Recep Tayyip Erdogan extending his presidency – and his unorthodox economic policies – at a 10-week low of 19.75 for the dollar.
The Thai baht, which initially rallied on the back of strong election results for progressive parties, fell 0.7% as politicians entered what could be a long period of deal-making until government formation. (EMRG/FRX)