The dollar is down in Asia as the US debt ceiling crisis remains unresolved

Singapore ( – The US dollar weakened broadly in early Asia on Wednesday morning, after US President Joe Biden and top lawmakers failed to break an impasse on the debt ceiling crisis, despite marginal currency moves on caution ahead of US inflation data at a later time.

Biden and House of Representatives Speaker Kevin McCarthy remain divided over increasing the $31.4 trillion debt limit after talks on Tuesday (9/5/2023), with just weeks before the United States could be forced into default (default) which had never happened before.

However, the two agreed to further talks and roped in their aide for daily discussions on possible areas of agreement. Biden, McCarthy and three other congressional leaders will meet again on Friday (12/5/2023).

greenback slipped in early Asian trade, with the euro up 0.11 percent to $1.0971 and sterling up 0.1 percent to $1.2634. The kiwi traded 0.05 percent higher to $0.6338.

“There’s been a lot of attention lately on the debt ceiling issue,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA). “I don’t think this issue will be resolved any time soon. Usually, in the past, issues were usually resolved at the last minute.

“So that means there may be more volatility in the markets… and I think the dollar could weaken further, as we’ve seen in the past.”

Against a basket of currencies, the US dollar index was last 0.07 percent lower at 101.55.

Investors are also keeping an eye on US inflation data, with economists polled by Reuters forecasting a rise in core consumer prices of 5.5 percent year-on-year for April.

The stronger-than-expected figure could prove a headache for the Federal Reserve, which just last week opened the door for a break in its aggressive tightening cycle, having made 10 straight rate hikes since March 2022.

“The bar is high for the Fed’s response to data surprises in both directions,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank.

“Having completed a 500 basis point hike in interest rates and anticipating some credit tightening from the jiggles among regional banks, the Fed is unlikely to tighten further just because inflation is ‘solid’, instead requiring a re-acceleration of inflation.”

Money markets are pricing in about an 82 percent chance that the Fed will hold rates steady at its next meeting in June, and are pricing in rate cuts starting in July through the end of the year.

Rising expectations that the Fed will start cutting interest rates later this year were driven by recent pressures in the banking sector sparked by the collapse of Silicon Valley Bank in March.

Elsewhere, the Japanese yen rose 0.1 percent to 135.11 per dollar.

Bank of Japan (BoJ) governor Kazuo Ueda said on Tuesday (9/5/2023) the BoJ would end its yield curve control policy and then start shrinking its balance sheet after prospects boosted inflation to reach its 2.0 percent target on a sustained basis, though his comments were muted raised yen.

“What Ueda said is not at all surprising,” said CBA’s Kong. “I think the market is already expecting the Japanese central bank to make some moves.”

The Australian dollar was last 0.08 percent higher at $0.67675.

The Australian Labor Government on Tuesday (9.5/2023) reported its first budget surplus in 15 years, as strong job growth and hefty mining profits swelled its coffers.

Also read: The US dollar edged up, the market is waiting for talks on debt ceilings, inflation data
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Translator: Apep Suhendar
Editor: Faisal Yunianto


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