The dollar reached a new two-month high against a basket of peers, supported by recent indications of a healthy US economy, as investors continued to flee to safe havens due to uncertainty about US debt ceiling negotiations.
Despite the fact that the Washington standoff over the debt ceiling might result in a default and send the US economy into recession, analysts indicated that the dollar is not perceived as posing an immediate risk, unlike some Treasury assets.
The US Economy Has Proven Resilient, Giving The Currency a Boost
According to Joe Manimbo, senior market analyst at Convera in Washington, market expectations that the Federal Reserve would start cutting interest rates soon have decreased as US economic data has showed resilience and given the currency a boost.
Once the minutes from the Fed’s policy-setting meeting in early May were made public, market expectations that the Fed will increase rates at its upcoming meeting in June marginally increased.
The need for further rate rises had become less certain, according to Fed officials last month, while others cautioned that the US central bank needed to leave its options open given the risks of sustained inflation.
The FedWatch tool from CME Group indicates that there is a 35.3% chance that the Fed will raise rates when its two-day policy meeting concludes on June 14.
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US Currency Against Six Major Peers
Prior to that, the dollar index, which compares the US dollar to six significant rivals, reached 103.91, its highest level since March 20. At 103.86, the index last increased 0.319%.
The chief market strategist of Bannockburn Global Forex in New York, Marc Chandler, expressed his skepticism that the debt ceiling talks have had a significant impact on the foreign currency market.
Although the Atlanta Federal Reserve Bank anticipates that the US economy will expand at a 2.9% clip in the second quarter, economic data may continue to boost the dollar.
The pound fell to a five-week low of $1.2358 against the dollar and last traded down 0.42% as statistics revealed that British inflation declined far less than had been anticipated by the markets.
The euro, which was recently down 0.26% at 1.1495, and the British pound both fell in value.
The core services inflation rate for the eurozone, which was released on Tuesday, remained high, damaging Sweden’s crown as the ECB prepares to hike interest rates in June and July.
