Fed hike bets; debt ceiling deal optimism keeps dollar stable. The dollar stayed steady on Monday, buoyed by increased expectations of more rate hikes by the U.S. Federal Reserve. However, news of a debt ceiling resolution drove some haven bids away.
The U.S. dollar hit a six-month high of 140.91 yen in early Asia trade before retreating to 140.39. It gained roughly 3% versus the Japanese yen per month.
Rising U.S. Treasury yields have pushed the yen lower as bets rise that U.S. interest rates will stay higher for longer.
On Friday, U.S. consumer spending rose more than predicted in April, and inflation rose, indicating a strong economy.
On Friday, the two-year yield, which often indicates near-term interest rate forecasts, rose to 4.639%, a two-month high.
Due to the U.S. Memorial Day holiday, cash U.S. Treasuries were untraded in Asia on Monday. Futures remained stable. Ten-year futures implied 3.84%.
Monday holidays close the U.K. market too. Euro rose 0.02% to $1.0735, while sterling fell 0.01% to $1.23495.
“Whether the dollar sustains the rally that we’re seeing, I think it’ll depend on particularly the wages data, or average earnings within Friday’s payrolls report, and obviously we’ve got CPI before the Fed as well,” said National Australia Bank (NAB) head of F.X. strategy Ray Attrill.
“There’s still quite a lot of data to flow under the bridge before we get to the June meeting.”
The CME FedWatch tool now estimates a 62% possibility that the Fed will raise rates by 25 bps in June, up from 26% a week ago.
Asia was happy after U.S. President Joe Biden reached a budget agreement with House Speaker Kevin McCarthy to suspend the $31.4 trillion debt ceiling until Jan. 1, 2025.
Biden suggested Sunday that Congress might vote on the deal.
The risk-sensitive Australian and New Zealand dollars rose from their six-month lows last week on confidence. Kiwi increased 0.29% to $0.60645, while Aussie rose 0.41% to $0.6545.
The U.S. dollar index fell 0.15% to 104.11, near last week’s two-month peak 104.42. “We’ve got a risk-positive response so far to the debt deal news,” said NAB’s Attrill.
“Obviously there’s still the need to get this debt deal over the line, but I think markets are happy to travel on the presumption that it will get done before the new X-date.”
On Friday, U.S. Treasury Secretary Janet Yellen said the country would default if Congress did not raise the $31.4 trillion debt ceiling by June 5, having earlier warned of a June 1 default.
After falling to a record low of 20.06 per dollar on Friday, the Turkish lira remained under pressure at 20.04.
Turkey’s autocratic President, Tayyip Erdogan, won a third term on Sunday.
