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Dollar edges down as U.S. debt ceiling deal dents safe-haven appeal

Monday,   29-May-2023   02:41 PM (IST)

The dollar edged down on Monday, pulling back from six-month peaks against the yen as a U.S. debt ceiling deal lifted risk appetite across financial markets and dented the greenback's safe-haven appeal. U.S. President Joe Biden on Sunday finalised a budget agreement with House Speaker Kevin McCarthy to suspend the $31.4 trillion debt ceiling until Jan. 1, 2025, and said the deal was ready to move to Congress for a vote. Having briefly touched a six-month high of 140.91 yen during Asia trade, the dollar drifted lower and was last down around 0.1% at 140.50 yen. The dollar index, which measures the U.S. unit's value against a basket of other major currencies, was also a touch softer around 104.23 but not far from last week's two-month peaks. The pull-back in the safe-haven dollar came as world stocks rallied on the positive news from Washington, although trade was generally subdued with parts of Europe, including Britain, on holiday. Monday was also a holiday in the United States. The agreement would suspend the debt limit through January 1 of 2025, cap spending in the 2024 and 2025 budgets, claw back unused COVID funds, speed up the permitting process for some energy projects and include extra work requirements for food aid programmes for poor Americans. Upbeat world sentiment pushed the risk-sensitive Australian and New Zealand dollars off last week's six-month lows. U.S. Treasury Secretary Janet Yellen had on Friday said the government would default if Congress did not increase the $31.4 trillion debt ceiling by June 5, having previously said a default could happen as early as June 1. Still, the dollar held its ground against other major currencies with the euro 0.1% lower around $1.0722, while sterling was marginally weaker at $1.2344. Talk that the U.S. rate hiking cycle may not be over as soon as hoped given signs of economic strength have bolstered the dollar this month. The dollar was on course for a monthly gain of about 3% against the Japanese currency. Data released on Friday showed that U.S. consumer spending increased more than expected in April and inflation picked up, adding to signs of a still-resilient economy. Money markets price in a 62% chance that the Fed will raise rates by 25 basis points in June, versus a roughly 26% chance a week ago. Elsewhere, the Turkish lira touched a fresh record low at 20.065 per dollar after President Tayyip Erdogan secured victory in the country's presidential election on Sunday, extending his increasingly authoritarian rule into a third decade.