Dollar Holds Firm on Monday as US Debt Ceiling Deal Nears
Key Highlights :
The US dollar held firm on Monday, supported by rising expectations of further rate hikes by the US Federal Reserve. The news that a debt ceiling deal had been finalised drew some of the safe haven bids away from the greenback, but the dollar was still able to hold its gains.
The rand was steady, trading at R19.62/$ on Monday morning after hitting a record low of almost R19.83 last week. The US dollar notched a fresh six-month high of 140.91 yen in early Asia trade before reversing some of those gains to last trade at 140.39 yen. It was on course for a monthly gain of about 3% against the Japanese currency.
The yen's renewed decline has come on the back of rising U.S. Treasury yields, as bets grow that interest rates in the United States would stay higher for longer. Data released on Friday showed that U.S. consumer spending increased more than expected in April and inflation picked up, adding to signs of a still-resilient economy. Yields on U.S. Treasuries jumped on the back of the data, with the two-year yield, which typically reflects near-term interest rate expectations, rising to an over two-month high of 4.639% on Friday.
Cash US Treasuries were untraded in Asia on Monday, owing to the Memorial Day holiday in the United States, while futures were broadly steady. Ten-year futures' implied yield was 3.84%. The UK market is similarly closed on Monday for a holiday.
Against the dollar, the euro edged 0.02% higher to $1.0735, while sterling slipped 0.01% to $1.23495. Money markets are now pricing in a 62% chance that the Fed will raise rates by 25 bps in June, as compared to a roughly 26% chance a week ago, according to the CME FedWatch tool.
The upbeat mood in Asia was dominated by news that U.S. President Joe Biden had finalised a budget agreement with House Speaker Kevin McCarthy to suspend the $31.4 trillion debt ceiling until Jan. 1, 2025. Biden said on Sunday that the deal was ready to move to Congress for a vote.
The wave of optimism pushed the risk-sensitive Australian and New Zealand dollars away from their six-month lows hit last week. The Aussie rose 0.41% to $0.6545, while the kiwi edged 0.29% higher to $0.60645. The US dollar index was last 0.15% lower at 104.11, though it remained near last week's two-month peak of 104.42.
Ray Attrill, head of FX strategy at National Australia Bank (NAB), said that the dollar's rally would depend on the wages data and inflation data due to be released before the Fed's June meeting. "There's still quite a lot of data to flow under the bridge before we get to the June meeting," he said.
US Treasury Secretary Janet Yellen had on Friday said the government would default if Congress did not increase the $31.4 trillion debt ceiling by June 5, having previously said a default could happen as early as June 1.
Elsewhere, the Turkish lira remained under pressure at 20.04 per U.S. dollar, after having slumped to a record low of 20.06 per dollar on Friday. President Tayyip Erdogan secured victory in the country's presidential election on Sunday, extending his increasingly authoritarian rule into a third decade.
The dollar held firm on Monday as investors bet on further rate hikes by the US Federal Reserve and a debt ceiling deal nears completion. The rand was steady, trading at R19.62/$, while the US dollar notched a fresh six-month high of 140.91 yen in early Asia trade. US Treasury yields jumped on the back of data showing that US consumer spending increased more than expected in April and inflation picked up. The wave of optimism pushed the risk-sensitive Australian and New Zealand dollars away from their six-month lows hit last week. Money markets are now pricing in a 62% chance that the Fed will raise rates by 25 bps in June, as compared to a roughly 26% chance a week ago. US Treasury Secretary Janet Yellen had on Friday said the government would default if Congress did not increase the $31.4 trillion debt ceiling by June 5. The Turkish lira remained under pressure at 20.04 per U.S. dollar, after having slumped to a record low of 20.06 per dollar on Friday. President Tayyip Erdogan secured victory in the country's presidential election on Sunday. With the debt ceiling deal nearing completion, the dollar held firm on Monday, with investors betting on further rate hikes by the US Federal Reserve.
