Dollar to rise for the third week as US debt discussions approach. As investors banked on higher-for-longer interest rates to contain sticky inflation and anxiously anticipated a resolution to last-ditch U.S. debt ceiling talks, the dollar fell on Friday. Still, it remained on course for a third consecutive weekly gain.
On Thursday, President Joe Biden and top congressional Republican Kevin McCarthy made headway in negotiations, but markets remained on edge ahead of the U.S. bank holiday weekend.
“Monday is a bank holiday in the U.S. so market participants will have to wait until Tuesday 30th May to trade positions again so there is a strong belief that Washington needs to make a deal happen today,” MUFG currency analysts wrote.
Wall Street traders have grown wary about U.S. government debt instruments. Still, the chance of a deal lifted sentiment across markets on Friday and boosted risk-sensitive currencies at the dollar’s expense.
The U.S. dollar index, which monitors the greenback against six major currencies, fell 0.2% to 104.06, barely off Thursday’s two-month high of 104.31. It was still expected to rise 0.8% weekly.
Expectations that the Federal Reserve may have to keep interest rates higher for longer to control inflation have also boosted the dollar.
Money markets now predict a 42.5% chance that the Federal Reserve will raise rates by 25 basis points at its policy meeting next month, but views that it will cut rates later this year have decreased.
Last week, 229,000 Americans filed new unemployment claims, lower than expected.
“Recent moves in currencies have been mainly driven by a sharp repricing of FOMC policy,” said CBA currency strategist Carol Kong.
The dollar fell from a six-month high of 140.23 yen to 139.67.
Euro and pound gains were limited against the dollar.
On Friday, Croatian policymaker Boris Vujcic said it is questionable whether the European Central Bank can cut price rise to 2% within two years and inflationary pressures remain in the union.
At $1.07350, the euro was 0.1% higher than its two-month low of $1.0708. After April, consumer spending rose, and sterling rose 0.2% to $1.23470.
