Dollar lowers in early trade

22 May 2023 , 08:13 AM

Following an unexpected breakdown in U.S. debt ceiling discussions and after Federal Reserve chair Jerome Powell signalled a preference for gradual rate hikes, the dollar suffered losses against the yen and the euro on Monday.

Beginning the week, the dollar fell 0.15% to 137.715 yen after ending a six-day winning streak on Friday and retreating from a six-month high.

The euro increased by 0.14% to $1.0822, maintaining its Friday gain after rebounding from a seven-week low.

Investors are now anticipating Monday’s crucial meeting between House Republican Speaker Kevin McCarthy and U.S. President Joe Biden to address the debt ceiling.

On Friday, talks between the two parties abruptly came to an end when Republican negotiators left the room. Although discussions eventually picked back up, neither party acknowledged any progress, which caused the dollar to decline.

Numerous currency specialists believe that as we approach the alleged ‘X-date’ in early June, when the Treasury is most likely to run out of money, brinkmanship should be expected.

Powell said that because of tighter lending conditions, ‘our policy rate may not need to rise as much as it would have otherwise to achieve our goals,’ though he emphasised that decisions will be made ‘meeting by meeting.’ Powell was speaking at a central bank conference in Washington on Friday.

Bets for an increase on June 14 have been reduced by money market traders to just 9%.

The dollar index, which compares the value of the dollar to those of six important peers, fell 0.04% to 103.00 this week after rising to 103.63 last week for the first time since March 20.

According to Christine Lagarde, president of the European Central Bank, authorities must ‘buckle up’ for ‘sustainably high interest rates’ in order to meet their inflation goal.

Sterling continued its comeback from last week’s three-week low, rising 0.14% to $1.2464.

The New Zealand dollar increased 0.13% to $0.62835, while the Australian dollar grew by 0.06% to $0.6655.

Following Friday’s recovery from a nearly six-month bottom of 7.0750 per dollar, the Chinese yuan was barely changed in offshore trading at 7.0334, helped by central bank remarks that it will reduce significant exchange rate volatility.

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