# Dollar eases before inflation data, with nagging worries over debt ceiling impasse
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-05-10
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Dollar Weakens Ahead of Inflation Data: Debts &
Meta Description: Explore how concerns over the debt ceiling impasse impact currency markets on Reuters. Stay informed on the latest developments with Rae Wee.
URL: https://financedigest.com/dollar-eases-before-inflation-data-with-nagging-worries-over-debt-ceiling-impassehtml

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# Dollar eases before inflation data, with nagging worries over debt ceiling impasse

By Rae Wee

SINGAPORE (Reuters) – The dollar weakened broadly on Wednesday after U.S. President Joe Biden and top lawmakers failed to break a deadlock on the debt ceiling crisis, though currency [moves were marginal amid caution ahead](https://www.financedigest.com/the-implantable-biomaterials-market-to-move-ahead-on-rpa-robotic-process-automation.html "The Implantable Biomaterials Market to move ahead on RPA (Robotic Process Automation)") of U.S. [inflation data](https://www.financedigest.com/soft-lending-and-inflation-data-pave-way-for-smaller-ecb-hike.html "Soft lending and inflation data pave way for smaller ECB hike") later in the day.

Biden and House of Representatives Speaker Kevin McCarthy remained [divided over raising](https://www.financedigest.com/divided-bank-of-england-edging-closer-to-raising-interest-rates-but-unlikely-to-move-in-august.html "Divided Bank of England edging closer to raising interest rates, but unlikely to move in August") the $31.4 trillion U.S. [debt limit following talks](https://www.financedigest.com/asian-shares-tentative-us-debt-ceiling-talks-weigh-on-risk-appetite.html "Asian shares tentative, US debt ceiling talks weigh on risk appetite") on Tuesday, with just weeks to go before the United States may be forced into an unprecedented default.

The two, however, agreed to further talks and committed their aides to daily. Biden, McCarthy and the three other [top congressional leaders are set](https://www.financedigest.com/byd-set-to-be-chinas-top-selling-car-brand-for-nov-tesla-gains-data.html "BYD set to be China’s top-selling car brand for Nov, Tesla gains -data") to meet again on Friday.

The greenback [dipped slightly](https://www.financedigest.com/irish-consumer-sentiment-dips-slightly-on-tech-job-losses.html "Irish consumer sentiment dips slightly on tech job losses") in Asia trade, while holding onto most of its gains from the previous session as nervousness over Wednesday’s U.S. [inflation data](https://www.financedigest.com/shares-drop-yields-shoot-up-after-u-s-inflation-data.html "Shares drop, yields shoot up after U.S. inflation data") kept the safe-haven currency buoyant.

The euro rose 0.06% to $1.0966 while [sterling slipped](https://www.financedigest.com/sterling-slips-as-boost-from-new-china-covid-rules-fades.html "Sterling slips as boost from new China COVID rules fades") 0.04% to $1.2617.

The kiwi [edged 0.08% higher](https://www.financedigest.com/asia-shares-edge-higher-wary-of-us-bank-data.html "Asia shares edge higher, wary of US bank data") to $0.6340.

There has been a lot of attention lately on the debt ceiling issues,” said Carol Kong, a [currency strategist at Commonwealth Bank](https://www.financedigest.com/analysis-war-in-ukraine-puts-pressure-on-east-european-banks-to-prop-up-sinking-currencies.html "Analysis-War in Ukraine puts pressure on East European banks to prop up sinking currencies") of Australia (CBA). I don’t think the [issue will be resolved](https://www.financedigest.com/apple-says-issues-with-imessage-facetime-resolved35792.html "Apple says issues with iMessage, FaceTime resolved") anytime soon. Typically, in the past, the issues usually get resolved very last minute.

So that means there could be some more [volatility in markets](https://www.financedigest.com/puma-confirms-full-year-outlook-flags-market-volatility.html "Puma confirms full-year outlook, flags market volatility") … and I think the [dollar could weaken](https://www.financedigest.com/rouble-weakens-towards-62-vs-dollar-stocks-up.html "Rouble weakens towards 62 vs dollar, stocks up") even further, as we have seen in the past.

Against a [basket of currencies](https://www.financedigest.com/the-yuan-makes-its-official-entry-into-rawbanks-currency-basket.html "The yuan makes its official entry into RAWBANK’s currency basket"), the U.S. dollar index <=USD> steadied at 101.64.

Economists polled by Reuters expect core consumer [prices in the United States to rise](https://www.financedigest.com/world-food-prices-rise-for-first-time-in-a-year-fao.html "World food prices rise for first time in a year- FAO") 5.5% on a year-on-year basis for the month of April.

A stronger-than-expected reading could prove a headache for the Federal Reserve, which had just last week [opened the door to a pause in its aggressive tightening cycle](https://www.financedigest.com/fed-delivers-small-rate-hike-opens-door-to-pause-in-tightening-cycle.html "Fed delivers small rate hike, opens door to pause in tightening cycle"), having delivered 10 consecutive rate hikes since March 2022.

The bar is high for a Fed response to data surprises in either direction,” said Vishnu Varathan, head of [economics and strategy at Mizuho Bank](https://www.financedigest.com/banking-crisis-breakthroughs-win-nobel-economics-prize-for-bernanke-diamond-dybvig.html "Banking crisis breakthroughs win Nobel economics prize for Bernanke, Diamond, Dybvig").

Having concluded 500 [bps of rate hikes](https://www.financedigest.com/ecb-to-go-big-again-on-oct-27-with-75-bps-rate-hike-reuters-poll.html "ECB to go big again on Oct. 27 with 75 bps rate hike: Reuters poll") and anticipating some credit tightening from a shake-down amongst regional banks, the Fed is unlikely to tighten further on merely ‘sticky’ inflation, instead requiring re-acceleration of inflation.

Money markets are pricing in a roughly 80% chance that the Fed will keep rates on hold at its next meeting in June, and [expect rate cuts](https://www.financedigest.com/paypal-adjusted-margin-forecast-cut-eclipses-higher-profit-expectations.html "PayPal adjusted margin forecast cut eclipses higher profit expectations") to begin in July through to the end of the year.

Rising expectations that the Fed will begin cutting rates later this year have been driven by recent stress in the banking sector following the collapse of [Silicon Valley](https://www.financedigest.com/kpmg-stands-by-audits-of-silicon-valley-bank-and-signature-bank-ft.html "KPMG stands by audits of Silicon Valley Bank and Signature Bank – FT") Bank in March.

Elsewhere, the Japanese [yen fell 0.1% to 135.32 per dollar](https://www.financedigest.com/dollar-hits-20-yr-high-as-yen-tumbles-on-dovish-bank-of-japan.html "Dollar hits 20-yr high as yen tumbles on dovish Bank of Japan").

Bank of Japan (BOJ) Governor Kazuo Ueda said on Wednesday the [central bank](https://www.financedigest.com/climate-change-fight-a-core-duty-for-central-banks-ecbs-villeroy.html "Climate change fight a ‘core duty’ for central banks – ECB’s Villeroy") will debate an exit strategy from ultra-loose monetary policy and communicate it to the public once stable, sustained achievement of its inflation target approaches.

“What Ueda said was not surprising at all,” said CBA’s Kong. I [think markets](https://www.financedigest.com/maximising-the-opportunities-available-from-marketing-technology-and-innovation-focused-thinking.html "Maximising the opportunities available from marketing technology and innovation focused thinking") are already expecting the Bank of Japan to make some moves.

The Australian [dollar was last 0.03% lower](https://www.financedigest.com/evergrande-jitters-pull-risk-currencies-lower-dollar-gains-on-safety-bid.html "Evergrande jitters pull risk currencies lower, dollar gains on safety bid") at $0.6760.

(Reporting by Rae Wee; Editing by Edwina Gibbs & Simon Cameron-Moore)


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