Dollar ascendant amid resilient US economy, haven demand

Thursday,   25-May-2023   08:18 AM (IST)

The dollar pushed to a two-month high against the euro and a six-month peak versus the yen on Thursday, as a resilient U.S. economy led traders to pare their bets on rate cuts this year. The greenback has also benefited from demand for safe havens, paradoxically as a U.S. debt ceiling impasse threatens a disastrous default as soon as June 1, when the Treasury has warned it would be unable to pay all its bills. The dollar touched $1.07425 per euro early in the Asian session for the first time since March 24, and remained elevated to last trade at $1.0748. The dollar also bought 139.66 yen, a level last seen on Nov. 30. With only a week left until the "X-date" for a debt ceiling resolution, and a divided Congress also needing several days to pass legislation, investors are becoming increasingly jittery. Fitch put the United States' "AAA" debt ratings on negative watch on Wednesday, adding to the sense of imminent crisis. The U.S. dollar index , which measures the currency against six major peers including the euro and yen, touched a two-month high of 104.01. The latest sign of weakness out of Europe came from a worse-than-expected deterioration in German business confidence. Meanwhile, the Chinese yuan renewed a six-month low by dropping to 7.0827 per dollar in the offshore market. The Asian giant has seen a cascade of disappointing economic indicators, all pointing to dull consumer demand and suggesting a post-pandemic recovery has already run its course. Australia's dollar has felt the impact of that China weakness acutely because of its close trade ties, edging to a fresh 6 1/2-month low of $0.6527. The New Zealand dollar was still reeling from the central bank's shock dovish tilt on Wednesday, which triggered a 2.2% slide. On Thursday, it pushed to the lowest since mid-November at $0.6085. The U.S. economy's resilience in the face of the Federal Reserve's aggressive tightening campaign has trimmed expectations for rate cuts this year to just a quarter point in December, from as much as 75 basis points previously. Money markets ramped back up the odds to about 1-in-3 for another quarter-point hike in June, with several Fed officials striking a hawkish posture recently with consumer inflation still running about twice the 2% target.