Dollar eases as deal over US debt ceiling lifts risk appetite

30 May 2023 , 10:27 AM

After a deal over the U.S. debt ceiling bolstered risk sentiment on Tuesday, the U.S. dollar declined versus a basket of other currencies but did not stray far from a two-month top. However, the agreement may have trouble getting through Congress.

The dollar index, which compares the value of the dollar to six important rival currencies, decreased 0.125% to 104.17, retreating from its two-month high of 104.42 reached on Friday. The index is anticipated to end the month up 2.5%.

Several conservative Republican legislators declared on Monday that they would oppose an agreement to raise the $31.4 trillion debt ceiling for the United States.

The resistance draws attention to the challenges Democratic President Joe Biden and senior legislative Republican Kevin McCarthy will have in their attempt to pass the package through the Democratically controlled Senate and Republican-dominated House of Representatives before the limit is reached, which is anticipated to happen by next Monday.

The 99-page measure would postpone raising the debt ceiling until January 1, 2025, allowing Congress to put the politically sensitive topic on hold until after the November 2024 presidential election. Over the next two years, some government spending would also be limited.

According to U.S. Treasury Secretary Janet Yellen, if Congress does not raise the debt ceiling by June 5 the government will fall into default. She has earlier stated that a default might occur as early as June 1.

Until Congress signs the agreement into law, according to Carol Kong, currency strategist at Commonwealth Bank of Australia, there will likely be concern about a U.S. government default.

In the near term, expectations for Fed rate hikes are likely to keep the dollar strong, excepting any volatility brought on by the debt ceiling difficulties.

According to the CME FedWatch tool, markets are now pricing in a 60% likelihood of a 25 basis-point rise in June, up from a 26% chance a week earlier.

Longer-dated On Tuesday, U.S. Treasuries rose in Asia due to the debt ceiling agreement.

Benchmark At the start of trading in Tokyo, 10-year rates decreased by 6 basis points to 3.7596%. 30-year rates decreased 5.5 basis points to 3.9207%. When bond prices rise, yields decrease.

Sterling recently traded at $1.2365, up 0.11% on the day, while the euro was up 0.09% at $1.0715.

After reaching a six-month low of 140.91 per dollar on Monday, the yen gained 0.28% to 140.06. The kiwi increased by 0.08% to $0.606, while the Australian dollar increased by 0.14% to $0.655.

For feedback and suggestions, write to us at [e-mail] a deal over the U.S. debt ceiling bolstered risk sentiment on Tuesday, the U.S. dollar declined versus a basket of other currencies but did not stray far from a two-month top. However, the agreement may have trouble getting through Congress.

The dollar index, which compares the value of the dollar to six important rival currencies, decreased 0.125% to 104.17, retreating from its two-month high of 104.42 reached on Friday. The index is anticipated to end the month up 2.5%.

Several conservative Republican legislators declared on Monday that they would oppose an agreement to raise the $31.4 trillion debt ceiling for the United States.

The resistance draws attention to the challenges Democratic President Joe Biden and senior legislative Republican Kevin McCarthy will have in their attempt to pass the package through the Democratically controlled Senate and Republican-dominated House of Representatives before the limit is reached, which is anticipated to happen by next Monday.

The 99-page measure would postpone raising the debt ceiling until January 1, 2025, allowing Congress to put the politically sensitive topic on hold until after the November 2024 presidential election. Over the next two years, some government spending would also be limited.

According to U.S. Treasury Secretary Janet Yellen, if Congress does not raise the debt ceiling by June 5 the government will fall into default. She has earlier stated that a default might occur as early as June 1.

Until Congress signs the agreement into law, according to Carol Kong, currency strategist at Commonwealth Bank of Australia, there will likely be concern about a U.S. government default.

In the near term, expectations for Fed rate hikes are likely to keep the dollar strong, excepting any volatility brought on by the debt ceiling difficulties.

According to the CME FedWatch tool, markets are now pricing in a 60% likelihood of a 25 basis-point rise in June, up from a 26% chance a week earlier.

Longer-dated On Tuesday, U.S. Treasuries rose in Asia due to the debt ceiling agreement.

Benchmark At the start of trading in Tokyo, 10-year rates decreased by 6 basis points to 3.7596%. 30-year rates decreased 5.5 basis points to 3.9207%. When bond prices rise, yields decrease.

Sterling recently traded at $1.2365, up 0.11% on the day, while the euro was up 0.09% at $1.0715.

After reaching a six-month low of 140.91 per dollar on Monday, the yen gained 0.28% to 140.06. The kiwi increased by 0.08% to $0.606, while the Australian dollar increased by 0.14% to $0.655.

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