© Reuters. FILE PHOTO: US dollar banknotes are seen in this illustration taken on March 10, 2023. REUTERS/Dado Rovic/Illustration
Written by Samuel Indyk
LONDON (Reuters) – The US dollar rose for a second day on Tuesday, briefly touching a six-month peak against the Japanese yen, on expectations that US interest rates will remain high for longer, while ongoing debt ceiling negotiations kept investors on edge.
Among the slew of Fed heavyweights who spoke on Monday, some hinted that the central bank should continue to tighten monetary policy.
Minneapolis Fed President Neel Kashkari said US interest rates may have to move “above 6%” for inflation to return to the Fed’s 2% target, while St. Louis Fed President James Bullard said the central bank may He still needs to raise it by another half point this year.
As US policy makers seem to favor higher rates, traders have stepped up their bets that the federal funds rate will remain elevated, with a near 30% chance of a rate hike in June and the federal funds rate seen at around 4.75% in December. .
“The Fed’s hawkish comments have raised expectations for a rate hike, and that’s one of the reasons why the dollar has been firmer across the board,” said Niels Christensen, senior analyst at Nordea.
The euro, which measures the greenback against a basket of major currencies, rose 0.3% to 103.53, not far from the nearly two-month high of 103.63 it hit last week.
Meanwhile, business growth in the eurozone slowed slightly more than expected, but remained resilient this month as the bloc’s dominant services industry lost a bit of its luster and a slowdown in the manufacturing sector deepened, a survey showed on Tuesday.
The euro fell 0.3% to $1.0778 and is down over 2% for the month so far, reversing two straight months of gains.
Sterling shrugged off British growth upgrade from the International Monetary Fund and fell 0.5% to a one-month low of $1.2373 after Tuesday’s Purchasing Managers’ Index survey painted a contrasting picture for British businesses with services firms reporting growth in May, while companies contracted. manufacturing again. .
Flash PMI data from the US is due later on Tuesday.
LOOMS “X-DATE”
Investors also had concerns about the looming deadline for the US debt ceiling, which put an end to sentiment towards risk and propped up the safe-haven US dollar.
President Joe Biden and House Speaker Kevin McCarthy ended discussions Monday with no agreement on how to raise the US government’s $31.4 trillion debt ceiling and will continue to talk with just 10 days before a potential default.
“The markets still expect some kind of agreement,” Nordea’s Christensen said.
“The agreement would raise more risk sentiment, which could be negative for the dollar,” he added.
Short-term US Treasury yields jumped continuously, reflecting market jitters, with the yield on one-month Treasury notes rising to a record high of 5.904%. Yields rise when bond prices fall.
Against the Japanese yen, the dollar rose to a six-month high of 138.88 in Asian trade but was last down 0.1% at 138.5 yen.
The New Zealand dollar fell 0.5% to $0.6623, while the New Zealand dollar fell 0.5% to $0.6252.
The flexible US dollar kept the pin near a five-month low and last bought 7.0675 yuan.
China on Monday kept its record lending rates unchanged, as a weaker yuan and widening yield differentials with the United States limited the scope of any significant monetary easing to support the country’s post-COVID economic recovery.
