US dollar steady as debt ceiling talks to resume
THE US dollar was broadly steady on Monday (May 22), with US debt ceiling negotiations set to resume and Federal Reserve (Fed) chair Jerome Powell having indicated he favours a meeting-by-meeting approach when it comes to future policy moves.
The greenback was little changed at 137.975 yen to start the week, having snapped a six-day winning streak on Friday, pulling back from a six-month peak.
The euro was up 0.1 per cent against the US dollar at US$1.0821, after hitting a seven-week low of US$1.0760 on Friday.
Investors are now waiting for a meeting between US President Joe Biden and House Speaker Kevin McCarthy to discuss the debt ceiling on Monday, after a phone call on Sunday that both sides described as positive.
Analysts said optimism over the debt limit was still providing support to the US dollar.
“Friday there was a bit of a setback, but there’s a bit more optimism after the weekend,” said Francesco Pesole, FX strategist at ING, citing the phone call.
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“Markets are seeing a deal on the debt limit, and at the same time the Fed pushing back on rate cuts, which is ultimately proving positive for the US dollar.”
Powell told a central bank conference in Washington on Friday that tighter credit conditions mean “our policy rate may not need to rise as much as it would have otherwise to achieve our goals”, although he reiterated that decisions would be made “meeting by meeting”.
ING’s Pesole said: “Ultimately, the takeaway from Powell is if data suggests there is more need for tighter policy I don’t think Powell would be against it.”
Still, money market traders have pared back bets for a hike on Jun 14 to around 16 per cent.
The US dollar index, which measures the greenback against six other major currencies, was flat at 103.04, hovering well below last week’s high of 103.63, a level last seen on Mar 20.
Westpac strategist Sean Callow projects the index could drop towards 101 in coming days or weeks, “especially given ongoing ECB resolve on inflation”.
European Central Bank President Christine Lagarde said on Friday that officials need to “buckle up” for “sustainably high interest rates” in order to achieve its price target.
Elsewhere, sterling was flat at US$1.2452, after hitting a three-week low of US$1.2392 on Thursday. The Australian dollar was down 0.1 per cent at US$0.6645, while the New Zealand dollar rose 0.1 per cent to US$0.6284. Traders ramped up bets to one-in-three for a half-point hike by the Reserve Bank of New Zealand on Wednesday.
The Chinese yuan (CNY) weakened to 7.0443 per US dollar in offshore trading, creeping back towards Friday’s six-month low of 7.0750. The currency has been under pressure on growing signs the country’s post-Covid recovery may already be petering out, but got some respite on Friday after the People’s Bank of China (PBOC) pledged to curb large exchange-rate fluctuations.
“Despite these warnings, the PBOC may favour short term CNY underperformance… to help provide some stimulus,” TD Securities strategist Mitul Kotecha said.
“Overall, while markets may now be a little more wary of pushing the CNY lower, we think the CNY will largely track the US dollar in the short term.” REUTERS
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