The dollar fell slightly on Monday, pulling away from six-month highs against the yen, as the US debt ceiling agreement increased risk appetite in global markets and reduced the attractiveness of the note. green for sure values.
US President Joe Biden on Sunday finalized a budget deal with House Speaker Kevin McCarthy to suspend the $31.4 trillion debt ceiling until January 1, 2025, and said the deal was ready to be voted on by Congress.
After briefly hitting a six-month high of 140.91 yen during Asian trading, the dollar retreated and fell almost a third of a percent to 140.17 yen.
The Dollar Index, which measures the value of the US unit against a basket of other major currencies, was also a bit weaker around 104.23 but not far off last week’s two-month highs.
The decline in the safe-haven dollar came as global equities rallied on positive news from Washington, although trade was generally subdued, parts of Europe including the Britain, being on vacation, as is the United States.
“An initial reaction to rising risk is likely as the cloud of US default has dissipated,” said Charu Chanana, market strategist at Saxo Markets in Singapore.
“But attention will quickly turn to the fact that getting the deal is just one step in the process and that a House of Representatives and Senate deal by June 5 is still very much. hard to get.
The deal would suspend the debt limit until January 1, 2025 and cap spending in the 2024 and 2025 budgets.
ELECTION IN SPAIN
In Europe, the euro slipped 0.2% to $1.0709, showing little immediate reaction to news of a snap election in Spain.
Spanish Prime Minister Pedro Sanchez said on Monday the polls would take place on July 23 after his leftist coalition government suffered heavy losses in Sunday’s regional polls.
Global optimism pushed the risk-sensitive Australian and New Zealand dollars back from last week’s six-month lows.
The Australian dollar rose 0.35% to $0.6541, while the Kiwi rose 0.2% to $0.6058.
“We have a positive risk reaction so far to the news of the debt deal,” said Ray Attrill, head of currency strategy at National Australia Bank.
“Obviously there is still a need to get this debt deal through, but I think the markets are happy to ride on the presumption that it will be done before the new X date.”
On Friday, Janet Yellen, US Treasury Secretary, said the government would be in default if Congress did not raise the debt ceiling by $31.4 trillion by June 5, after she had previously stated that a default could occur as early as June 1.
The idea that the U.S. rate hike cycle might not end as quickly as hoped, given the signs of economic strength, supported the dollar and could support the currency even if concerns about the upper limit US debt subsides.
The dollar was on track for a monthly gain of around 3% against the yen. The Dollar Index gained 2.5% in May.
Friday’s data showed U.S. consumer spending rose more than expected in April and inflation picked up, reinforcing signs of a still-resilient economy.
Money markets estimate that there is about a 62% chance that the Federal Reserve will raise rates by 25 basis points in June, up from about 26% a week ago.
Elsewhere, the Turkish lira hit a record low of 20.10 to the dollar after President Tayyip Erdogan clinched victory in the country’s presidential election on Sunday, extending his increasingly authoritarian rule into a third decade.
Bitcoin, meanwhile, slid 0.5% to $27,932, after hitting a three-week high earlier.