© Reuters. FILE PHOTO: One hundred US dollar banknotes are seen in this illustration taken in Seoul on February 7, 2011. REUTERS/Lee Jae-won
Written by Samuel Indyk and Kevin Buckland
LONDON (Reuters) – The dollar held steady against the euro and the yen on Monday, as US debt ceiling negotiations were set to resume and after Federal Reserve Chairman Jerome Powell signaled he favored a one-on-one approach when it comes to future policy moves. .
The dollar fell 0.1% to 137.85 yen to start the week, after snapping a six-day winning streak on Friday, pulling back from a six-month high.
The euro was little changed at $1.0805, after hitting a seven-week low of $1.0760 on Friday.
Investors are now awaiting a crucial meeting between US President Joe Biden and Republican House Speaker Kevin McCarthy to discuss the debt ceiling on Monday, after a phone call on Sunday that both sides described as positive.
Analysts said that optimism about the debt limit supports the dollar.
“On Friday there was a bit of a setback but there is more optimism after the weekend,” said Francesco Pesol, a forex analyst at ING, citing the phone call between Biden and McCarthy.
“The markets are seeing a deal on the debt limit and at the same time the Fed is pressing interest rate cuts which ultimately proved positive for the dollar.”
Federal Reserve Chairman Powell said at a central bank conference in Washington on Friday that tightening credit conditions means that “our policy rate may not need to go up as much as it would have to achieve our goals,” though he reiterated that decisions would be made “meeting in an interview.” .
“Ultimately, the take away from Powell is that if the data suggests there is a greater need for a tougher policy, I don’t think Powell will oppose it,” said ING’s Bisol.
Money market traders have cut their bets for a rally on June 14th to around 17%.
The dollar, which measures the greenback against six other major currencies, rose 0.2% to 103.20, hovering well below last week’s high of 103.63, a level last seen on March 20.
Sean Callow, a strategist at Westpac, expects the index to drop towards 101 in the coming days or weeks, “especially given the European Central Bank’s continued grit on inflation.”
European Central Bank President Christine Lagarde said on Friday that officials need to “end up” for “sustainably high interest rates” in order to achieve the target rate.
Elsewhere, sterling fell 0.2 percent to $1.2425, after hitting a three-week low of $1.2392 on Thursday.
It fell by 0.3%, to $0.6631.
The New Zealand dollar fell 0.2% to $0.6265, as traders ramped up bets to 1 in 3 against a half-point increase by the Reserve Bank on Wednesday.
The rate fell to 7.0435 per dollar in offshore trade, creeping back towards Friday’s six-month low of 7.0750.
The currency has been pressured by mounting signs that the country’s post-COVID recovery may already be fading, but it got some relief on Friday after the People’s Bank of China pledged to curb large exchange rate swings.
“Despite these warnings, the People’s Bank of China (PBOC) may favor a weaker Chinese yuan in the short term…to help provide some stimulus,” Mitul Kotecha, strategist at TD Securities, wrote in a note.
“Overall, while markets may now be more wary of pushing the Chinese yuan lower, we believe that the Chinese yuan will largely follow the dollar in the short term.”
