Dollar hits 6-month peak vs yen

The US dollar inched higher for a second day on Tuesday — touching a six-month peak against Japan’s yen — on expectations that US rates will remain higher for longer, while ongoing debt ceiling negotiations kept investors on edge.

Among a slew of Federal Reserve heavyweights who spoke on Monday, some hinted that the central bank had further to go in tightening monetary policy.

Minneapolis Fed President Neel Kashkari said that US rates may have to go “north of 6 per cent” for inflation to return to the Fed’s 2 per cent target, while St. Louis Fed President James Bullard said the central bank may still need to raise another half-point this year.

Against the Japanese yen, the greenback rose to a near six-month peak of 138.88 in Asia trade. The dollar was last 0.1 per cent lower at 138.445 yen.

With US policymakers sounding a preference for higher rates, traders ramped up bets that the Fed funds rate will stay elevated, with markets pricing in around a 20 per cent chance of a rate hike in June and the Fed funds rate seen at about 4.7 per cent in December.

“Hawkish Fed comments have lifted rate hike expectations and that is one reason why the dollar is firmer across the board,” said Niels Christensen, chief analyst at Nordea.

The euro slipped 0.2 per cent to $1.0795 and is down around 2 per cent for the month thus far against a stronger dollar, reversing two straight months of gains.

Euro zone business growth slowed slightly more than thought but remained resilient this month as the bloc’s dominant services industry lost a little of its shine and the downturn in the manufacturing sector deepened, a survey showed on Tuesday.

Sterling was down 0.3 per cent at $1.24.

Flash PMI figures from the UK and United States are due later on Tuesday.

‘X-date’ looms

Also on investors’ minds were concerns over a looming debt ceiling deadline in the United States, which put a lid on risk sentiment and supported the safe-haven US dollar.

President Joe Biden and House Speaker Kevin McCarthy ended discussions on Monday with no agreement on how to raise the US government’s $31.4 trillion debt ceiling and will keep talking with just 10 days before a possible default.

“Markets are still expecting some sort of deal to be reached,” Nordea’s Christensen said.

“An agreement should spark some more risk-on sentiment which could be negative for the dollar,” he added.

Short-end US Treasury yields have jumped still, reflecting market jitters, with the yield on the one-month Treasury bill last at 5.881 per cent. Yields rise when bond prices fall.

The yield on the two-month Treasury bill rose to a roughly three-week high of 5.556 per cent.

Against a basket of currencies, the US dollar rose 0.1 per cent to 103.41, not far from a roughly two-month high of 103.63 hit last week.

The Aussie slipped 0.4 per cent to $0.6625, while the kiwi fell 0.4 per cent to $0.6258.

The resilient dollar kept the offshore yuan pinned near its recent five-month low and it last bought 7.0661.

China on Monday kept its benchmark lending rates unchanged, as a weakening yuan and widening yield differentials with the US limited the scope for any substantial monetary easing to shore up the country’s post-Covid economic recovery.

• Business