The US dollar traded higher in early European hours on Wednesday after hawkish comments from a number of Federal Reserve officials and as the debt ceiling continued to struggle in Washington.
At 8:26 GMT, the dollar index, which tracks the greenback against a basket of six other currencies, rose 0.2% to 102.698.
The US currency has recently benefited from the uncertainty surrounding the possibility of default in the US if a deal to raise the country’s borrowing limit is not implemented.
President Joe Biden met with Republican House Speaker Kevin McCarthy on Tuesday, and although there was encouraging noise about the possibility of a deal, nothing has been decided.
Biden also warned that no deal would likely push the US economy into recession, but would also have a very negative impact globally, thus the dollar gaining safe haven status.
“The highly likely negative impact on risk sentiment and money markets means that upside risks for the dollar and yen are very important in such a scenario,” ING analysts said in a note.
The dollar on Wednesday also underpinned hawkish comments by Federal Reserve policymakers this week, suggesting that the US central bank could still raise interest rates again.
The Federal Reserve raised interest rates last week for the 10th consecutive time, but hinted that it may be about to pause its aggressive tightening as it studies incoming economic data.
Cleveland Fed President Loretta Mester said Tuesday that “at this point, based on the data that I have so far, given the complexity of inflation, I can’t say I’m at the level of the federal funds rate since it’s also very likely that the next step will be an increase.” .
Also, the USD/EUR fell 0.1% to 1.0856, ahead of the release of the latest April data on the Eurozone CPI, which is expected to show continued price increases.
ING added: “EURUSD should remain mainly driven by the USD leg and the US debt frontier saga: we see 1.0800 as a key indicator of support, and a break below this level is likely to indicate a significant deterioration in market sentiment.”
USD/GBP was also down 0.3% to 1.2454, with Sterling remaining under pressure after an unexpected UK unemployment rate announcement in March, raising the possibility that the Bank of England will pause interest rate payments when it next meets in June. June.
While the USDJPY currency pair rose 0.3% to 136.79, after reaching a two-week peak overnight, the USDJPY currency pair fell 0.1% to 0.6649, while the USDJPY currency pair rose 0.2% to 6.9928, with the yuan falling to its weakest level since mid-December on mounting bets that the People’s Bank of China will need to ease monetary policy further to support economic growth.
