US dollar set for third week of gains as country’s debt talks loom large

THE dollar was set for a third straight weekly gain on Friday (May 26), as markets raised bets on higher-for-longer interest rates and amid closely watched last-ditch talks on the US debt ceiling.

Apparent progress in the talks between President Joe Biden and top congressional Republican Kevin McCarthy helped ease investor jitters, but doubts remained about when both sides would reach agreement. Biden and McCarthy are closing in on a deal that would raise the government’s US$31.4 trillion debt ceiling for two years while capping spending on most items, a US official said. But an administration official briefed on the talks warned that “major issues” remained.

The US dollar index, which tracks the currency against six major counterparts, was last down 0.038 per cent on the day at 104.170 per cent. “There’s some positive vibes or at least positive undertones to the debt ceiling talks over the last 24 hours or so,” said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets.

The dollar’s recent momentum has also been driven by raised expectations that the Federal Reserve will have to keep interest rates higher for longer to subdue inflation. US consumer spending increased more than expected in April, jumping 0.8 per cent last month, the Commerce Department said on Friday. Following the readout, the dollar hit a new six-month high against the yen and last stood at 140.60.

Leading European policymakers struck varying tones on the future path of eurozone inflation on Friday, with European Central Bank chief economist Philip Lane pushing back against concerns about core inflation. The euro was last up 0.11 per cent against the dollar at US$1.0731.

Sterling was last trading at US$1.2352, up 0.26 per cent on the day, after data showed UK consumers picked up spending in April, although the currency was still heading for a weekly loss. REUTERS