The dollar falls in early trade as expectations for no Fed rate hike rise

2 Jun 2023 , 10:24 AM

The U.S. dollar slumped against key rivals on Friday, heading for its worst week since late March, as expectations that the Federal Reserve won’t raise interest rates this month increased.

The dollar, which had strangely been a primary benefit due to its safe-haven status, lost strength as signs indicated a bill to postpone the U.S. debt ceiling and prevent a catastrophic default would soon become law.

The U.S. dollar index, which compares the value of the dollar to a basket of six foreign currencies, fell 0.62% on Thursday, its weakest day in nearly a month, but was little changed at 103.57 in early Asian trading.

The index is expected to lose 0.63% for the week, which would be a worse showing than the week that concluded on March 26.

Patrick Harker, president of the Philadelphia Federal Reserve, stated on Thursday that ‘it’s time to at least hit the stop button for one meeting and see how it goes,’ alluding to the meeting scheduled for June 13–14.

Fed Governor Philip Jefferson had stated the previous day that ‘skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.’

The case for a pause was strengthened by some overnight softening in U.S. manufacturing statistics, but jobs data was still printing well, drawing even more attention than normal to the monthly non-farm payrolls report later in the day.

In the money markets, the probability of an increase is at about 29%, down from around 70% earlier in the week.

The dollar gained a fraction of a percent to reach 138.94 yen after falling as low as 138.44 on Thursday for the first time since May 24.

The two frequently follow long-term Treasury rates in the US, which were at 3.61% in Tokyo after falling overnight to 3.57%, their lowest level since November 18.

After hitting a one-week high of $1.07685 the previous session, when European Central Bank President Christine Lagarde gave the single currency a boost by indicating that more policy tightening was required, the euro was unchanged at $1.0761.

Late on Thursday, the U.S. Senate appeared to be moving towards passing a measure to raise the government’s $31.4 trillion debt ceiling. Democratic Majority Leader Chuck Schumer declared: ‘We are avoiding default tonight.’

Before a Monday deadline for raising the debt ceiling until January 1, 2025, all 100 senators came to an agreement to discuss up to 11 amendments and then swiftly vote on enacting the legislation.

According to Schumer, if the strategy is successful, Congress would promptly send the legislation to Joe Biden for his signature.

On Wednesday, the bill was approved by the House with a sizable margin.

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