This illustrated illustration of Jordanian dinars, currency of Saudi Arabia, yuan, Turkish lira, pound, U.S. dollar, euro and Saudi currency are seen in this depiction.
The dollar reverted on Thursday from a two-week peak against its major peers on its biggest markets as investors trimmed bets that the Federal Reserve will raise interest rates this month, though the looming debt ceiling deadline gave safe haven support to the greenback.
The House of Representatives passed a bill Wednesday to stop the $31.4 trillion debt ceiling, with the focus now on how it will fare in the Democratic-led Senate just days before the federal government is expected to run out of money to pay its bills.
The dollar was mixed in Asia trade and didn't react to the vote, with the euro rising 0.04% against the greenback to $1.06895.
The U.S. dollar index surged 0.06% to 104.21, though it was still down from an over two-month high hit in the previous session, as traders pared back their expectations of a rate hike by the Federal Reserve this month.
Fed officials, including the vice chair-designate, pointed towards a rate hike skip in June, giving time for the U.S. central bank to assess the impact of its tightening cycle thus far against still strong inflation data.
The CME FedWatch tool has forecast that the Fed is expected to raise rates by 25 basis points at its upcoming meeting, compared to a near 67% chance a day ago.
The recent run of U.S. economic data does favour another rate hike in the near-term, although our baseline is that the FOMC is already done with its current tightening cycle, Hong Kong said in a statement.
The yen surged nearly 0.1%, to 139.24 per dollar.
Japan's financial authorities met yesterday in the wake of the yen's slide to a six-month low against the U.S. dollar, where the country's top diplomat said Japan would closely monitor currency moves and won't rule out any options.
In Asia, the value of the Chinese yuan rose to 7.1077 from a six-month low, reversing some of its losses from the previous session.
China's industrial activity unexpectedly swung to growth in May from a decline in April, a private sector survey showed on Thursday, driven by improved production and demand, helping struggling firms that have been hit by slumping profits.
In May, the yuan had dropped nearly 3% compared to the dollar in both the onshore and offshore markets, as China's post-COVID economy struggled to gain steam.
On Wednesday, the official manufacturing purchasing managers' index PMI data showed that China's manufacturing activity shrank faster than expected in May, falling to a five-month low of 48.8.
On net, the path of least resistance for USD CNH is to the upside considering the negative RMB carry, push-back in China's reopening momentum and foreign outflows, said OCBC currency strategist Christopher Wong.
The weak economy in China also dragged Australia and New Zealand dollars to their lowest in more than six months in the previous session, with both currencies struggling to recoup their losses on Thursday.
The Australian dollar rose 0.02% to $0.6505, while the kiwi dropped 0.07% to $0.6017. The antipodean currencies are frequently utilized as liquid proxies for the yuan.
Until a broader stimulus program is unveiled, he said, the yuan won't find a bid, especially with the People's Bank of China set to loosen monetary policy first.
Inevitably, further weakening in the yuan could put new upward pressure on the dollar vs the majors, extending the strength in the dollar seen since early May for a bit more.