Dollar steady as debt ceiling talks to resume

The dollar was generally stable on Monday, with US debt ceiling talks due to restart and Federal Reserve Chair Jerome Powell signalling his preference for a meeting-by-meeting approach to future policy decisions.

To begin the week, the dollar was little changed at 137.975 yen, having ended a six-day winning streak on Friday, pulling back from a six-month high.

The euro was up 0.1% versus the dollar, trading at $1.0821 after hitting a seven-week low of $1.0760 on Friday.

Investors are now anticipating a meeting on Monday between US President Joe Biden and House Republican Speaker Kevin McCarthy to address the debt ceiling, following a phone discussion on Sunday viewed as constructive by both parties.

Fed Chair Powell said on Friday at a central bank conference in Washington that tighter lending conditions imply “our policy rate may not need to rise as much as it would have otherwise to achieve our goals,” while he stressed that choices would be taken “meeting by meeting.”

Nonetheless, money market traders have reduced their bets on a June 14 raise to roughly 16%.

The dollar index, which compares the US currency to six other major currencies, was unchanged at 103.04, significantly below last week’s high of 103.63, last set on March 20.

Westpac strategist Sean Callow believes the index will fall to 101 in the next days or weeks, “especially given the ECB’s continued stance on inflation.”

European Central Bank President Christine Lagarde said on Friday officials need to “buckle up” for “sustainably high interest rates” in order to achieve its price target.

Sterling remained unchanged at $1.2452 after touching a three-week low of $1.2392 on Thursday.

The Australian dollar was down 0.1% at $0.6645.

The New Zealand currency increased 0.1% to $0.6284, with traders increasing their odds of a half-point raise by the Reserve Bank on Wednesday to 1-in-3.

In offshore trade, the Chinese yuan fell to 7.0443 per dollar, approaching Friday’s six-month low of 7.0750.

The yuan has been under pressure because to rising signals that the country’s post-COVID recovery is stalling, but it received some relief on Friday when the People’s Bank of China committed to limit major exchange rate changes.