He dollar gains positions at the start of Tuesday’s trading session in Europe, holding near two-month highs as traders digest the possibility of more interest rate hikes from the Federal Reserve, as well as the approval of the agreement on the ceiling of the debt of the United States in a divided Congress.
The dollar index, which tracks the dollar against a basket of six other major currencies, rose 0.2% to 104.323, after hitting two-month highs earlier in the day at 104.420.
The president of the United States, Joe Biden, and the main Republican congressman, Kevin McCarthy, reached an agreement this weekend to suspend the debt ceiling until 2025 and limit some federal spending in order to avoid a US debt default.
This deal now has limited time to win approval in a hotly divided Congress before the US Treasury runs out of money to service all its obligations, and it will surely face opposition from extremes of both parties.
The dollar held firm on Monday, in a day when the US and UK markets were closed for holidays, and is now on track to record a monthly gain of just under 2.5%, as traders brace for the possibility that US interest rates will continue to rise for longer.
The highly anticipated US jobs report is due to be released on Friday, which is expected to show that the country’s labor market remains resilient, with 180,000 job creations expected in May.
In addition, inflation remains high, leading to the assumption that there is a 60% chance of a 25 basis point hike by the Federal Reserve in June at pricing, which that supports the dollar.
How the rest of the currencies work
On the other hand, the EUR/USD pair fell 0.3% to the level of 1.0691, the euro feeling the impact of the strengthening of the dollar, while inflation in Spain has surprised downwards, with a rise of 3 .2% annual in May, below the expected 4.4%.
GBP/USD rises to 1.2345, while USD/JPY is down 0.1% at 140.41, after earlier hitting a six-month high on rising Treasury yields US.
AUD/USD is slightly up to the 0.6523 level, while USD/CNY is up 0.4% to 7.0918, posting fresh six-month highs after the People’s Bank of China cut drastically its average interest rate for the day, sending pessimistic signals to the market.
USD/TRY is trading 1.4% higher at 20.2807, and remains very weak following the re-election of Tayyip Erdoan as President of Turkey, suggesting that interest rates will remain low despite the rise in inflation.
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