Dollar is heading for a third weekly gain, amid expectations of continuing interest rate hikes

The dollar fell on Friday, but remained close to the highest level in two months against major currencies, amid expectations that US interest rates will remain high for a longer period.

Tension still hangs over the market due to the US debt ceiling negotiations between President Joe Biden and Republican House Speaker Kevin McCarthy, although the news that the two were close to reaching an agreement raised investor sentiment and halted the rise of the dollar.

The dollar fell from its highest level in six months against the yen in Asian trading and settled in the latest trading at 139.77 yen, after hitting 140.23 yen in the previous session, the highest level since November.

The dollar index fell 0.13 percent to 104.09 points against a basket of currencies, retreating from the highest level in two months, which it recorded on Thursday at 104.31 points.

However, the index was on track to gain more than 0.8 percent for the third week in a row as traders’ expectations increased about how high interest rates in the United States could go.

Money markets expect by 40 percent that the Federal Reserve will increase the interest rate by another 25 basis points at the monetary policy meeting next month, while expectations that it will start cutting interest rates later this year have receded.

Data released on Thursday showed that the number of Americans filing new applications for unemployment benefits rose last week to 229,000, lower than expected.

The British pound rose 0.13% to $1.2337, but was still on track for a weekly loss of more than 0.8%.

The euro rose 0.15% to $1.0741, and remained near a two-month low of 1.0708 hit in the previous session.

The single currency was also affected by confirmation that Germany, Europe’s largest economy, would enter recession in early 2023.

The Australian dollar rose 0.22% to $0.6520, after falling to its lowest level in more than six months to 0.6490 earlier in the session, affected by the faltering economic recovery in China after the Covid-19 pandemic.

The New Zealand dollar rose 0.15% to $0.6071, but is set to incur a weekly loss of more than 3%, the largest since September, after the Reserve Bank of New Zealand surprised markets this week by indicating that it had finished tightening.

The yuan rose from its lowest level in nearly six months against the dollar, with some major Chinese-owned banks selling the greenback to prevent the local currency from falling further.