Dollar gains as House adopts U.S. debt bill, euro dives ahead of inflation. After the U.S. House voted to postpone the debt ceiling, the dollar fell from a two-month high as investors reduced wagers the Federal Reserve would hike interest rates this month.
Before euro zone inflation statistics at 0900 GMT, the euro dipped.
On Wednesday, a divided U.S. House of Representatives passed a bill to suspend the $31.4 trillion debt ceiling, and attention now turns to how it will fare in the Democratic-led Senate just days before the federal government runs out of money.
“Our view is that… the U.S. government will avoid a default that could potentially derail the U.S. and also the global economy,” said Commonwealth Bank of Australia currency analyst Carol Kong.
“I think the dollar can gain a little bit more support on a successful vote today.”
As traders reduced their expectations of a Fed rate hike this month, the dollar index, which measures the currency against a basket of six peers, rose 0.22% to 104.38 from a two-month high of 104.7 on Wednesday.
The Fed’s vice chair-designate suggested a June rate hike “skip” to evaluate its tightening cycle against strong inflation statistics.
According to the CME FedWatch tool, markets expect the Fed to hike rates by 25 basis points at its forthcoming meeting, down from 67% a day earlier.
As inflation cools, the European Central Bank (ECB) may be less inclined to tighten monetary policy, sending the euro down 0.12% to $1.0675.
“May inflation data from Spain and Germany suggests pricing pressure is lessening. Commerzbank FX Analyst Antje Praefcke said the eurozone inflation rate released today might also be less than predicted.
Money markets see an 85% chance of a 25 bps ECB boost on June 15.
Commerzbank stated the market doubts two 25 bps rate moves. “That makes life difficult for the euro at present,” added Praefcke.
On Thursday, ECB Vice-President Luis de Guindos said the central bank had completed most of its tightening monetary policy, albeit the cycle is over.
Sterling declined 0.2% to $1.2421, while the yen fell 0.38% to 139.81 per dollar.
Japan’s financial authorities gathered this week after the yen’s six-month low versus the dollar. Japan’s top diplomat said the country would monitor currency movements and consider all alternatives.
In early London trading, the offshore yuan hit a six-month low of 7.1320 per dollar.
A private business poll on Thursday showed China’s manufacturing activity surprisingly rose in May after a drop in April.
The onshore and offshore yuan fell over 3% against the dollar in May as China’s post-COVID economic recovery slowed.