“Dollar Approaches 6-Month High Against Yen as US Government Debt Ceiling Talks Boost Optimism for Higher Interest Rates”

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The dollar approached its highest level in nearly 6 months against the yen on Friday, pushing the euro to its lowest level in more than seven weeks, as optimism about government debt ceiling talks in Washington fueled expectations that US interest rates would remain high for longer.

Democratic negotiators for US President Joe Biden said today, Friday, that they are making “steady progress” in talks with Republicans aimed at averting the United States from a debt default crisis, just days after Biden and Republican Kevin McCarthy, Speaker of the House of Representatives, confirmed their intention to conclude an agreement soon to lift the debt. The government debt ceiling of $31.4 trillion.

This allayed fears of an unprecedented catastrophic default, prompting markets to revise their expectations about the path of US interest rates.

Meanwhile, data indicating that fewer Americans filed new applications for unemployment benefits than expected last week increased expectations that the Federal Reserve (the US central bank) may raise interest rates again next month in an effort to control inflation. .

The dollar remained high in Asian trading today, Friday, and recorded in the latest transactions 138.47 yen, after approaching the highest level in about 6 months at 138.75 against the yen in the previous session.

The dollar is heading for a weekly gain of about 2% against the Japanese currency, its biggest rise since February.

The euro fell to its lowest level in more than 7 weeks at 1.0760 against the dollar, while the dollar index rose 0.07% to 103.57 points, close to the highest level in two months, which it recorded yesterday, Thursday, at 103.63 points.

The index tended to rise for the second week in a row, by 0.9%.

According to the (Feed Watch) tool of the (CME) group, financial markets now expect by 33% that the Federal Reserve will raise interest rates by another 25 basis points next month, compared to expectations of only about 10% in the previous week.

Traders have also lowered expectations about the size of the expected rate cut later this year, with rates expected to rise just above 4.6% by December.

US Treasury bond yields rose on the back of the Federal Reserve’s strict policy of raising interest rates, and in light of the increase in risk appetite. Yields increase as bond prices fall.

The two-year Treasury bonds settled at 4.2510%, while the ten-year bond yields recorded 3.6402% in the latest transactions.

Among other currencies, the British pound fell 0.1% to $1.2396.

The Australian dollar rose 0.2% to 0.6635 against the dollar.

The yuan fell in both transactions inside and outside China to the lowest level since last December with the rise of the dollar and fears of a faltering economic recovery in China.

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