Dollar edges higher; U.S. debt negotiations in focus

Investing.com – The U.S. dollar rose in early European trade Thursday as negotiations to end the debt ceiling standoff in Washington have yet to result in a deal, while more Fed officials are due.

At 02:55 ET (06:55 GMT), the , which tracks the greenback against a basket of six other currencies, gained 0.1% to 102.845, near a seven-week high.

President Joe Biden and top U.S. congressional Republican Kevin McCarthy have agreed to negotiate directly over the raising of the government’s $31.4 trillion debt ceiling, after a months-long standoff.

This has raised optimism that a deal can be reached to avoid a damaging debt default, but a cautious air has tempered risk-taking.

“Markets are looking at the glass half empty in this situation, as expectations were probably for some more tangible progress towards a deal,” said analysts at ING, in a note. “We think that there is still room for appreciation until we get clearer indications that the two sides have gotten closer on core issues when it comes to debt-limit negotiations.”

Traders will also focus on a slew of Federal Reserve speakers this week, most notably Chair on Friday, for more cues on monetary policy.

The is widely expected to pause its rate-hiking cycle in June, but Fed officials have generally offered up a hawkish view on monetary policy this week, pointing to still elevated levels of inflation.

fell 0.1% to 1.0832, near the previous session’s over six-week low, ahead of a speech by European Central Bank President later in the session, although the U.S. debt story remains the prime driver.

“1.0800 is probably a key benchmark level to gauge market sentiment about the US debt-ceiling story,” said ING. “We could see some good support at 1.0800, and a break lower could indicate the FX market moving more seriously to price in a U.S. default.”

fell 0.2% to 1.2464, ahead of the release of the Bank of England’s .

fell 0.1% to 137.50, with the yen bouncing after steep overnight losses, while fell 0.2% to 0.6645, as softer-than-expected labor data pointed to lesser economic headroom for the to keep raising interest rates.

rose 0.2% to 7.0151, crossing the psychologically-important 7 level against the dollar for the first time since early-December, as a string of weaker-than-expected economic readings for April pointed to a slowing recovery in the country.

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