U.S. Dollar Surges to Two-Month High Amidst Debt Ceiling Stalemate

(CTN News) – As investors became less willing to take risks on Tuesday due to the lack of movement in discussions to raise the U.S. debt limit, the dollar’s value rose to its highest level versus a basket of currencies in two months.

The deadline to increase the government’s $31.4 trillion borrowing limit or risk default is rapidly approaching, and on Tuesday, representatives of President Joe Biden and congressional Republicans completed another round of debt ceiling talks with no signs of progress.

John Doyle, vice president of trading and dealing at Monex USA, thinks the dollar experienced a minor bounce today as markets sank, largely owing to the lack of progress on the debt ceiling deal.

Dollar Index Reaches Two-Month High Amidst Risk-Averse Market

Doyle added that while most market players expect a solution in the long run, the delay in reaching one made traders apprehensive.

In addition, the dollar was buoyed by better-than-anticipated economic statistics and hawkish comments from regional Fed presidents like James Bullard and Neel Kashkari.

At its greatest point, the dollar index (which tracks the greenback versus a group of major currencies) hit 103.65 and was last seen at 103.55.

The US dollar climbed to a high of 138.91 Japanese yen, its strongest level versus the yen since November 30. It has now retreated to 138.57.

According to Edward Moya, senior market analyst at OANDA in New York, “the focus is slowly going back towards inflation and all this hawkish Fed speak we’ve been getting.”

As expectations for a Fed rate cut are delayed, the dollar’s strength will likely increase, and the market will likely adjust accordingly.

After Fed Chair Jerome Powell’s dovish statements last Friday, Fed policymakers have taken a more hawkish stance this week.

Powell said on Friday that it is still unclear if rates would need to climb further as central bank policymakers weigh inflation’s difficulty to control against the effects of prior rate hikes and current bank lending tightening.

Moya said that the Fed’s May meeting minutes, which are expected on Wednesday, will be closely examined for clues as to whether or not the central bank will suspend its rate hikes in June.

U.S. Single-Family Home Sales Surge and PMI Output Index Rises

With the market’s pricing in about a 30% chance of a rate hike in June and the Fed funds rate projected at around 4.75% in December, traders have increased their bets that the Fed funds rate will remain elevated.

According to data released on Tuesday, sales of new single-family houses in the United States hit a 13-month high in April. In addition, the flash U.S. Composite PMI Output Index from S&P Global, which measures performance in both the manufacturing and services industries, increased to 54.5 this month. After finishing April at 53.4, the highest level since April 2022.