Dollar up as sticky inflation cements bets on Fed hike, debt ceiling deal bolsters optimism

By sydney

SINGAPORE (Reuters) – The dollar was firm on Monday as economic resilience in the United States raised market expectations for further rate hikes by the Federal Reserve, while news that an agreement on the debt had been finalized created a certain sense of risk.

The greenback hit a new six-month high at 140.91 yen at the start of Asian trading and was heading for a monthly gain of more than 3% against the Japanese currency.

The yen’s further decline comes on the back of rising US Treasury yields, as bets grow that US interest rates will stay higher for longer.

Data released on Friday showed consumer spending in the United States rose more than expected in April and inflation picked up, adding to signs of a still resilient economy.

US Treasury yields jumped on the back of the data, with the two-year yield, which generally reflects short-term interest rate expectations, rising more than 10 basis points to a high over two months of 4.639% on Friday. [US/]

Cash U.S. Treasuries were not traded in Asia on Monday, due to the Memorial Day holiday in the United States, while futures were broadly flat. The implied yield on the ten-year futures was 3.84%.

The UK market is also closed on Mondays for a public holiday.

Against the dollar, the euro fell 0.13% to $1.0719, while the pound fell 0.07% to $1.2342.

“Whether the dollar sustains the rally we’re seeing I think will depend particularly on the payroll data, or the average earnings in Friday’s payrolls report, and obviously we also have the CPI ahead of the Fed” , said Ray Attrill. , Head of Foreign Exchange Strategy at National Australia Bank (NAB).

“There’s still quite a bit of data to flow under the bridge before we get to the June meeting.”

Money markets are now pricing nearly a 68% chance the Fed will raise rates by 25 basis points in June, up from around 17% a week ago, according to CME tool FedWatch.


Risk sentiment in Asia was boosted by news over the weekend that US President Joe Biden had finalized a budget deal with House Speaker Kevin McCarthy to suspend the $31.4 trillion debt ceiling until January 1, 2025.

Biden said Sunday the deal was ready to go to Congress for a vote.

The risk-sensitive Australian and New Zealand dollars edged higher with the Aussie rising 0.17% to $0.6529.

The kiwi gained 0.08% to $0.6052.

“So far, we’ve had a positive risk response to the announcement of the debt deal,” NAB’s Attrill said.

“Obviously there is still a need to get this debt deal done, but I think the markets are happy to travel assuming it will be done before the new X date.”

US Treasury Secretary Janet Yellen said on Friday that the government would default if Congress did not raise the debt ceiling by $31.4 trillion by June 5, after previously saying that a default could occur as early as June 1.

Against a basket of currencies, the US dollar rose 0.02% to 104.29.

Elsewhere, the Turkish lira was kept under pressure at 20.04 to the US dollar, after falling to a record high of 20.06 to the dollar on Friday.

President Tayyip Erdogan won the country’s presidential election on Sunday, extending his increasingly authoritarian rule for a third decade.

(Reporting by Rae Wee; Editing by Stephen Coates)

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