US dollar remains strong in early trade

18 May 2023 , 08:54 AM

On Thursday, the U.S. dollar stayed close to a seven-week high as President Joe Biden and top U.S. congressional Republican Kevin McCarthy attempted to avert a severe debt default. In contrast, the Australian dollar fell as a result of weak jobs data.

The government’s $31.4 trillion debt ceiling needs to be raised as quickly as possible, and Biden and McCarthy reiterated their commitment to doing so on Wednesday after deciding a day earlier to engage in direct talks to do so following a protracted deadlock.

The positive meeting lessened concerns about a historic American debt default, but it also discouraged taking risks.

In the aftermath of the encouraging developments regarding the debt ceiling negotiations, investors sold off the safe-haven bonds, keeping U.S. Treasury yields high in the early Asian trading session. When bond prices decline, yields increase.

The spike in treasury yields supported the growth of the US dollar. The dollar index, measured against a basket of currencies, firmed up close to the seven-week high it reached the previous session, and it last stood at 102.86.

The benchmark 10-year Treasury yield was recently at 3.5665%, while the two-year Treasury yield was at 4.1414%, up as much as 10 basis points from the previous session.

The Australian dollar helped to drive early Asian market activity as statistics released on Thursday revealed that Australia’s employment unexpectedly declined in April after posting astronomical rises in the previous two months. The unemployment rate also increased, suggesting that the blazingly hot labour market may be cooling.

After the data, the Australian dollar fell more than 0.3% and last traded 0.26% down at $0.6642.

At $1.0841, the euro was under pressure and close to a six-week low. On Wednesday, the euro hit a low of $1.08105, its lowest level since April 3.

The Japanese yen recently traded at 137.50 to the dollar, down almost 1% from Wednesday.

Sterling, on the other hand, had similarly dropped to a three-week low in the previous session and was last trading 0.02% lower at $1.2485.

The kiwi dropped 0.05% to $0.6245, while the offshore Chinese yuan dropped about 0.1% to $7.0147.

For the first time in five months, the yuan fell below 7 per dollar on Wednesday due to global unrest and additional indications that China’s post-COVID recovery is stalling.

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