Dollar holds firm on rate hikes, dollar rebounds

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Dollar holds firm on rate hikes, dollar rebounds

SINGAPORE'S dollar held firm on Monday because of growing expectations of further rate hikes by the U.S. Federal Reserve, though news that a debt ceiling deal had been finalised had drew some of the safe haven bids away from the greenback.

The U.S. dollar notched a fresh six-month high of 140.91 yen in early Asia trade, but reversing some of those gains to last trade at 140.39 yen. It would be a month-long gain of about 3 percent against the Japanese currency.

The yen's decline has been driven by rising U.S. Treasury yields, as bets on interest rates in the United States would remain higher for longer.

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

The two-year yield, typically reflected near-term interest rate expectations, rose to an over two-month high of 4.639 per cent on Friday.

On Monday, cash U.S. Treasuries were untraded in Asia due to the Memorial Day holiday in the United States, while futures were generally steady. Ten-year futures' expected yield was 3.84 percent, up from 3.84 per cent a year ago.

The UK market is also closed on Monday for a holiday.

The euro rose 0.02 percent to $1.0735 compared to the dollar, while sterling slipped 0.01 percent to $1.23495.

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, Mr Attrill said in a statement. Money markets are now pricing in a 62 per cent chance that the Fed will raise rates by 25 bps in June, compared to a roughly 26 per cent chance a week ago.

The positive news in Asia was dominated by the news that President Joe Biden has reached a budget agreement with House Speaker Kevin McCarthy to scrap the $31.4 trillion debt ceiling until Jan. 1, 2025.

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

The wave of optimism pushed the risk-sensitive Australian and New Zealand dollars away from their six-month lows hit last week.

The kiwi rose 0.41 per cent to close at $0.6545, while the Aussie was up 0.29 per cent at $0.60645.

The dollar index was down 0.15 percent at 104.11, though it was near last week's two-month peak of 104.42.

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

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 the government would default if Congress didn't increase the $31.4 trillion debt ceiling by June 5 and previously said a default could happen as early as June 1.

The Turkish lira remained under pressure at 20.04 per U.S. dollar, after falling to a record low of 20.06 per dollar on Friday.

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