SINGAPORE, May 19 (Reuters) – The dollar surged to a six-month high against the yen on Friday as optimism over Washington’s debt ceiling talks boosted hopes for U.S. interest rates to remain on hold. to its lowest in more than seven weeks. longer and higher.
Days after Biden and top Republican Kevin McCarthy emphasized their determination to reach an early deal to raise interest rates for the government, Democratic negotiators told President Joe Biden on Friday that the U.S. debt default He said he was making “steady progress” in talks with Republicans aimed at avoiding a (default). The debt ceiling is $31.4 trillion.
That allayed fears of an unprecedented and economically catastrophic default and prompted the market to revise its expectations of where U.S. interest rates could go.
At the same time, data suggesting a still tight labor market, including a lower-than-expected drop in the number of new Americans filing for unemployment benefits last week, also suggests the Federal Reserve will raise interest rates further next month. I had high hopes that it would be possible. to keep inflation down.
The dollar continued to strengthen in Asian trading on Friday, rising to a six-month high of 138.75 yen in the previous session, and ended at 138.47 yen.
The dollar is expected to gain about 2% against the Japanese currency in the week, its strongest since February.
The euro fell to a seven-week low of $1.0760, while the dollar index rose 0.07% to 103.57, hitting a two-month high of 103.63 on Thursday.
The index was on the verge of gaining nearly 0.9% for the second week in a row.
“Optimism about the debt ceiling is contributing to the Fed’s repricing, which effectively weighs heavily on the economy,” said Ray Attrill, head of currency strategy at National Australia. The fact is that it will remove the Bank (NAB).
“This removes one obstacle to the Fed continuing to raise rates.”
Two Fed policymakers said on Thursday that US inflation did not appear to be cooling fast enough for the Fed to suspend its tightening campaign.
Money markets are currently pricing in a 33% chance that the Fed will raise rates by another 25 basis points next month, compared with just about a 10% chance a week ago, according to the CME FedWatch tool.
Traders have also softened their forecasts for the size of the rate cuts expected this year, with a rate cut of just above 4.6% by December.
U.S. Treasury yields have risen on the back of hawkish repricing by the Fed and heightened risk sentiment. When bond prices fall, yields rise.
The two-year US Treasury yield, which usually fluctuates in line with interest rate expectations, was 4.2510% last time, while the benchmark 10-year Treasury yield was 3.6402% last time.
Among other currencies, the pound fell 0.1% to $1.2396.
Australian dollar
In Asia, Japan’s core consumer inflation rate was well above the central bank’s 2% target in April, major fuel-neutral indices hit 40-year highs, and the central bank Expectations were maintained that a large stimulus package could be adjusted. .
In China, the renminbi expanded its recent declines amid concerns over a strong dollar and a healthy recovery in the Chinese economy, with both onshore and offshore yuan hitting their lowest levels since December last year.
“The (yuan’s) weakness started with China’s activity data disappointing,” said Christopher Wong, currency strategist at OCBC. “After breaking through $7.00[on the dollar]the selloff picked up momentum, but there are few signs that policymakers will balk at the rapid pace of the decline.”
Reported by Rae Wee.Editing: Sam Holmes
Our criteria: Thomson Reuters Trust Principles.
