Dollar steady as Treasuries rise

SINGAPORE The dollar was steady on Monday as economic resilience in the United States raised market expectations for further rate hikes by the Federal ReserveFederal Reserve, while news that a debt ceiling deal had been finalised sparked some risk-on sentiment.

The value of the yen rose to a new six-month high of 140.91 yen in early Asia trade, leading to a monthly gain of more than 3 per cent against the Japanese currency.

The yen's continued decline has been due to a surge in U.S. Treasury yields, with bets that interest rates would stay higher for longer.

The data released on Friday showed that U.S. consumer spending increased more than expected in April, and inflation rose, adding to signs of a still-resilient economy.

The value of U.S. Treasuries rose on the back of the data, with the two-year yield, typically reflected near-term interest rate expectations, rising more than 10 percent on Friday to an over two-month high of 4.639 per cent.

Cash US Treasuries were untraded in Asia on Monday, owing to the Memorial Day holiday in the U.S., while futures were generally steady. Ten-year futures' average yield was 3.84 percent, down from the previous record of 3.84 percent.

On Monday, the UK market is closed for a holiday.

Against the dollar, the euro dropped 0.13 percent to $1.0719, while sterling fell 0.07 percent to $1.2342.

Whether the dollar sustains the rally that we're seeing, I think it'll depend on particularly the wages data, or average earnings within Friday's payrolls report, and obviously we've got CPI before the Fed as well, said Ray Attrill, head of FX strategy at National Australia Bank NAB. Money markets are now pricing in a nearly 68 percent chance that the Fed will raise rates by 25 bps in June, compared to a roughly 17 percent chance a week ago.

Over the weekend, investors in Asia remained buoyed by news that US President Joe Biden has reached a budget agreement with House Speaker Kevin McCarthy that would have the debt ceiling suspended until Jan. 1, 2025.

On Sunday, Biden said the deal was ready to go to Congress for a vote.

The risk-sensitive Australian and New Zealand currencies edged slightly higher today, with the Aussie up 0.17 per cent to $0.6529.

The kiwi gained 0.08 percent to $0.6052.

We've got a risk-positive response so far to the debt deal news, Attrill said.

Obviously there's still the need to get this debt deal over the line, but I think markets are happy to travel on the presumption that it will get done before the new X-date. U.S. Treasury Secretary Janet Yellen said on Friday that the government will default if Congress doesn't increase the $31.4 trillion debt ceiling by June 5 despite predicting a default could happen as early as June 1.

The dollar rose 0.02 percent to 104.29 against a basket of currencies.

The Turkish lira was held at 20.04 per US dollar after having slumped to a record low of 20.06 per dollar on Friday.

Tayyip Erdogan won the presidential election on Sunday, extending his increasingly dictatorial rule into a third decade.