The super dollar touched 5-week highs and the focus is on the US debt ceiling

The dollar rose on Tuesday in a day without a clear directionas investors kept an eye on talks on a US debt ceiling to avert a default that could spill over into all asset markets and damage confidence in the world’s largest economy.

The dollar index, a measure of the value of the greenback against six currencies, rose 0.2% to 102.61. Against the yen, the greenback also advanced 0.2%, to 136.315 units.

Debt ceiling negotiations between Democratic President Joe Biden and top Republican Congressman Kevin McCarthy ended on Tuesday after less than an hour.

However, the meeting ended on an unexpectedly optimistic note, as McCarthy, walking out of the meeting with Biden and other congressional leaders, said: “A deal is possible by the end of the week.”

Both parties agree that urgent action is needed.

“Obviously, to the extent that there is a risk of default, it would be chaotic. The question is whether, in the event of a default, Treasuries can serve as collateral in such a leveraged world,” said Axel Merk, president and director of investments of Merk Investments in Palo Alto.

Historically, the dollar tends to rise in times of financial stress and in periods of deleveraging, when investors rush to undo risky bets.

“But we don’t want Treasury bills,” Merk said. “So it’s very difficult to suggest that we have a dollar rally on that deleveraging. I would say it’s very difficult to predict what will happen, other than the volatility could be dramatic.”

In the afternoon, the euro fell 0.1% to $1.0858, while the pound fell 0.4% to $1.2478.

US retail sales rose less than expected in April, although the underlying trend remained strong, suggesting that consumer spending likely remained strong early in the second quarter.