The dollar eased on Friday, eyeing a third weekly gain as markets anticipated higher interest rates to fight inflation and awaited U.S. debt ceiling talks.
Positive developments emerged on Thursday in the negotiations between President Joe Biden and top congressional Republican Kevin McCarthy, which contributed to alleviating concerns.
US Dollar Index Falls As Risk Appetite Rises
However, the financial markets remained cautious about the possibility of a default, especially with a long bank holiday weekend approaching in the United States. In a note, currency analysts at MUFG stated that Monday is a bank holiday in the U.S., so market participants will have to wait until Tuesday, May 30th, to resume trading.
Traders on Wall Street have grown increasingly cautious regarding U.S. government debt securities. Nevertheless, the anticipation of an imminent agreement boosted market sentiment on Friday, resulting in a rise in risk-sensitive currencies at the expense of the U.S. dollar.
The U.S. dollar index, which tracks the currency against six major counterparts, was down 0.2% on the day at 104.04, just slightly below Thursday’s two-month high of 104.31. It was on track to achieve a weekly gain of approximately 0.8%.
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European Policymakers Discuss Eurozone Inflation Direction
Money markets currently indicate a 37.8% probability of the Federal Reserve implementing another 25-basis-point rate hike at its upcoming policy meeting next month, while expectations of rate cuts later in the year have been tempered.
Released data on Thursday revealed a moderate increase in the number of Americans filing new claims for unemployment benefits last week, reaching 229,000, which was lower than expected.
The U.S. dollar retreated slightly from a six-month high against the yen, with its current value at 139.675 compared to the previous session’s 140.23, which marked its highest point since November. Although the euro and British pound saw some recovery, they struggled to regain losses suffered against the U.S. dollar in recent times.
Prominent European policymakers expressed varying views on the future trajectory of euro zone inflation on Friday, with European Central Bank chief economist Philip Lane addressing concerns about core inflation.
The euro gained 0.1% against the U.S. dollar, reaching $1.07350, but it remained close to its two-month low of $1.0708 recorded in the previous session. Sterling experienced a 0.4% increase, reaching $1.23670, following data indicating increased consumer spending in April, although the currency was still on course for a weekly decline.
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