The U.S. dollar traded sideways in Asia on Tuesday local time ahead of debt ceiling talks between President Joe Biden and top lawmakers.
The dollar index, which assesses the currency against a basket of major peers, hovered around 102.47 during the day. The index hit a five-week high of 102.75 in the previous forex trading session. It later fell 0.26 percent overnight.
Sterling fell 0.13 percent to $1.2515 after a 0.67 percent gain on Monday. The British currency posted a 1.45 percent against the dollar last week.
The euro also lost 0.11 percent to $1.086 during the day after hitting the $1.0880 level in the previous session. It recorded a 1.54 percent weekly loss against the dollar last week, the highest in over eight months.
During the session, the dollar declined by 0.08 percent to 135.975 yen after strengthening to 136.32 on Monday. Analysts say the easing 10-year U.S. Treasury yield in Tokyo trading influenced the dollar-yen dynamic. The yen usually weakens against the U.S. dollar when yields on U.S. Treasury notes, bonds and bills rise.
The Australian dollar was down 0.33 percent at $0.6678 after China published its retail sales and industrial production data. Westpac senior FX strategist Sean Callow said the expectations of an upward trend for the Australian dollar had been “capped for some time by investor concerns over China’s outlook.” The data from China significantly influenced the Australian currency since China is Australia’s important trade partner.
China’s retail sales grew by 18.4 percent year-over-year in April against the initial estimates of 21 percent. Meanwhile, its industrial production posted an annual growth of 5.6 percent, lower than the 10.9 percent forecast. Analysts said the readings showed uneven post-pandemic economic recovery in China.
Against the Chinese yuan, the dollar strengthened by 0.2 percent to 6.9723 in the offshore trading after the news from China. The U.S. currency hit a two-month high of 6.9749 yuan in the previous session.
Fears surrounding the debt ceiling crisis will affect the dollar’s value in the coming days, say analysts. The dollar rallied last week after lawmakers delayed talks about the crisis to Tuesday.
Analysts have warned that the U.S. may default on its debts as soon as June 1 if lawmakers do not reach an agreement over the national debt limit soon. Republicans demand the Biden administration cut expenditures before agreeing to increase the debt limit, but the White House argues that it can affect the government programs.
Other factors weighing on dollar
According to analysts, expectations of interest rate cuts by the U.S. Federal Reserve and the global economic outlook will weigh on the dollar in the coming months. ANZ head of Asia research Khoon Goh said the market’s sentiment on the U.S. currency had turned “bearish.”
“If you remove the uncertainty around the debt ceiling situation, the sentiment has been turning bearish against the dollar.”
Khoon Goh, ANZ head of Asia research
The Fed raised its benchmark rate by 25 basis points and signaled a possible pause in the upcoming policy meeting. Recent economic data indicate a slowing rate of inflation, which is in line with the Fed’s objective. A preliminary reading on the consumer confidence index for May showed a decline to 57.7 from 63.5 in the previous month.
Another reading showed that one-year inflation expectations dropped to 4.5 percent from 4.6 percent in April. The market currently predicts a rate hike pause by the Fed in June, while an interest rate cut is expected to begin in September.
Analysts said the expectations of a global recession heightened in recent months. Soaring inflation in various parts of the world contributed to the increased recession fears. The recent banking stress in the U.S. and Europe also increased worries about the health of the global financial system.