SINGAPORE, May 17 (Reuters) – The dollar held firm on Wednesday as strong consumer spending data led traders to cut bets on an imminent U.S. rate cut, but the dollar also hit the U.S. economic crisis. As long as it lasted, defaults benefited from its safe-haven status.
President Joe Biden and top Republican Kevin McCarthy are moving closer to a deal to raise the U.S. debt ceiling, but nothing has been decided yet.
Biden has warned the economy could plunge into recession if debt defaults, but investors are worried about the global repercussions, and the dollar is seen as a safe haven as a result.
The dollar hit a two-week high of 136.69 yen overnight, but fell just below that level to 136.54 yen on Asian days. Against the euro, it is also trading above the 50-day moving average at $1.0866.
“A catastrophic blow to the world’s number one economy would only have a negative impact on the global economy, reducing risk appetite and making it a safe haven event,” said Jane Foley, strategist at Rabobank. will be,” he said.
Rabobank expects the euro to fall to $1.06 in six months.
The yen may have drawn some stability from data that showed Japan’s economy grew at an annualized rate of 1.6% last quarter, beating analysts’ expectations.
A strong increase in consumer spending in April and hawkish remarks by Federal Reserve officials have dampened hopes of an imminent rate cut in the United States.
“It’s too early to talk about rate cuts,” said Chicago Fed President Austan Goolsby, while Cleveland Fed President Loretta Mester said rates were still high enough for the central bank to keep them stable given inflation’s stubbornness. said no.
Two-year US Treasury yields rose seven basis points overnight to 4.12%, while benchmark 10-year yields rose four basis points to 3.55%, largely stable in Asia.
Interest rate futures pricing suggests no chance of a June rate cut, down from a chance of about 17% a month ago.
“We expect the dollar to rise slightly further as markets continue to price in rate cuts,” said Joe Capruso, strategist at Commonwealth Bank of Australia. “The hurdle is high, but there is a possibility of a rate hike within the year.”
The Australian dollar absorbed the previous day’s decline and traded below the 50-day moving average at $0.6655.
The pound was also under some pressure at $1.2480.
The New Zealand dollar is mostly stable at $0.6244, with investors expecting a 25 basis point hike next week and possibly more after that.
“We see a 20% chance of a 50 basis point hike and a 5% chance of a moratorium,” analysts at ANZ Bank said. “Both can backfire by lowering expectations for the future.”
European inflation data are also due to be released, but are expected to show little deviation from preliminary figures. US mortgage and housing starts data will be released later in the day.
Turkish lira hits 10-week low of 19.75 per dollar under pressure since election results left President Tayyip Erdogan open to extending his government and his unconventional economic policies bottom.
Thailand’s baht initially rose on strong election results from progressive parties, but fell about 0.4% as politicians entered what could be a long trading period before forming a government.
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Currency bid price at 0530 GMT
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Tokyo Foreign Exchange Market Information from the Bank of Japan
Reported by Tom Westbrook.Editing: Stephen Coates
Our criteria: Thomson Reuters Trust Principles.
