# Dollar gains after Fitch watch heightens debt ceiling jitters
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-05-25
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Dollar gains after Fitch watch heightens debt ceiling
Meta Description: The dollar hits a two-month peak as Fitch puts US debt rating on negative watch, benefiting from safe-haven demand amidst debt ceiling concerns.
URL: https://financedigest.com/dollar-gains-after-fitch-watch-heightens-debt-ceiling-jittershtml

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By Kevin Buckland

TOKYO (Reuters) – The dollar pushed to a two-month peak against a basket of its peers on Thursday as worries mounted about a disastrous U.S. default after [ratings company Fitch put the United States’ “AAA” debt ratings on negative](https://www.financedigest.com/analysis-europe-says-goodbye-to-negative-rates-or-just-au-revoir.html "Analysis-Europe says goodbye to negative rates – or just ‘au revoir’?") watch.

The greenback has paradoxically benefited from demand for safe havens with only a week left for a resolution to slow-moving [debt ceiling talks](https://www.financedigest.com/markets-edgy-as-us-debt-ceiling-talks-near-crunch-time.html "Markets edgy as US debt ceiling talks near crunch time") before the June 1 “X-date”, when the Treasury has warned it will be unable to pay all its bills.

The U.S. currency has also benefited from a paring of bets for Federal Reserve [rate cuts](https://www.financedigest.com/czech-central-bank-vice-gov-unlikely-to-vote-for-rate-cut-newspaper.html "Czech central bank vice-gov unlikely to vote for rate cut -newspaper") this year, with the economy proving resilient to the effects of the central bank’s aggressive tightening campaign until now.

That contrasts with escalating signs of economic malaise in [Europe and China](https://www.financedigest.com/unilever-downbeat-on-europe-china-consumer-sentiment.html "Unilever downbeat on Europe, China consumer sentiment"), which have sent those currencies to multi-month lows.

The dollar has seen a good, solid move higher, and there’s good reasons for it,” said Tony Sycamore, an analyst at IG Markets, pointing particularly to haven demand amid the [debt ceiling](https://www.financedigest.com/european-shares-weighed-by-us-debt-ceiling-concerns-slide-in-financials.html "European shares weighed by US debt ceiling concerns, slide in financials") standoff, as well as the signs of slowdowns in China and Europe.

I believe the [dollar could be on the cusp of another 2% move](https://www.financedigest.com/dollar-moves-off-lows-on-heels-of-inflation-data.html "Dollar moves off lows on heels of inflation data") higher, and Fitch could be the trigger for it.

The U.S. [dollar index](https://www.financedigest.com/dollar-index-jumps-after-u-s-retail-sales-show-surprise-rebound.html "Dollar index jumps after U.S. retail sales show surprise rebound"), which measures the currency against six major peers and is heavily weighted towards the euro, rose about 0.2% to 104.05, the highest since March 17.

Sycamore said a sustained break above 104 could lead to a test of 106.

The latest sign of weakness out of [Europe came from a worse-than-expected deterioration in German business](https://www.financedigest.com/neoma-business-school-opens-the-first-virtual-campus-in-europe.html "NEOMA Business School opens the first virtual campus in Europe") confidence.

The [euro slipped](https://www.financedigest.com/euro-slips-back-below-parity-norwegian-krone-falls-on-planned-cbank-fx-purchases.html "Euro slips back below parity, Norwegian krone falls on planned cbank FX purchases") about 0.1%, enough to refresh a two-month low at $1.0733.

Sterling [eased 0.2% to the weakest since April](https://www.financedigest.com/uk-car-output-up-9-9-y-o-y-in-april-as-supply-chain-issues-ease.html "UK car output up 9.9% y-o-y in April as supply chain issues ease") 3 at $1.2332.

Against the yen, the [dollar edged](https://www.financedigest.com/dollar-edges-lower-as-investors-wait-on-feds-powell.html "Dollar edges lower as investors wait on Fed’s Powell") to its strongest since Nov. 30 at 139.705.

The Chinese [yuan renewed a six-month low](https://www.financedigest.com/dollar-steadies-near-16-week-low-yuan-set-for-biggest-weekly-gain-since-2005.html "Dollar steadies near 16-week low, yuan set for biggest weekly gain since 2005"), dropping to 7.0879 per dollar in the offshore market.

The [Asian giant has produced a cascade of disappointing economic](https://www.financedigest.com/asian-economic-powers-warn-of-risks-from-war-monetary-policy-normalisation.html "Asian economic powers warn of risks from war, monetary policy normalisation") indicators, all pointing to dull consumer demand and suggesting a post-pandemic recovery has already run its course.

The PBoC (People’s Bank of China) showed little intention to defend the (yuan),” Ken Cheung, chief [Asian FX strategist at Mizuho Bank](https://www.financedigest.com/bny-mellon-joins-asian-development-banks-trade-finance-program.html "BNY Mellon joins Asian Development Bank’s Trade Finance Program"), wrote in a client note.

He expected the yuan to remain under pressure until the country’s economic [data shows improvement or the PBoC takes policy action to stabilise the currency market](https://www.financedigest.com/crowdsourcing-of-data-to-drive-the-pharmaceutical-excipients-market.html "Crowdsourcing of data to drive the Pharmaceutical Excipients Market").

Australia’s [dollar has felt the impact of China’s](https://www.financedigest.com/oil-up-on-lower-u-s-crude-stocks-and-dollar-opec-and-china-concerns-limit-gains.html "Oil up on lower U.S. crude stocks and dollar, OPEC+ and China concerns limit gains") economic weakness acutely due to its close trade ties, slipping to a 6 [1/2-month](https://www.financedigest.com/uk-retail-sales-rise-by-0-8-in-october-ons.html) low of $0.65235 on Thursday.

The New Zealand dollar was still reeling from the [central bank’s](https://www.financedigest.com/central-banks-ease-off-on-rate-hike-push-in-october.html "Central banks ease off on rate hike push in October") shock dovish tilt on Wednesday, which triggered a 2.2% slide. It slid a further 0.4% to [hit its lowest since](https://www.financedigest.com/uk-unemployment-hits-lowest-since-1974-but-jobs-boom-is-fading.html "UK unemployment hits lowest since 1974 but jobs boom is fading") mid-November at $0.6082.

Meanwhile, U.S. money market traders have trimmed [expectations for Fed rate](https://www.financedigest.com/dollar-slips-before-expected-fed-rate-hike.html "Dollar slips before expected Fed rate hike") cuts this year to just a quarter point in December, from as much as 75 basis points previously.

They have also ramped odds for another quarter-point hike in June back up to about 1-in-3, after several [Fed officials struck hawkish postures recently with consumer inflation](https://www.financedigest.com/u-s-consumers-inflation-expectations-highest-in-8-years-ny-fed-says.html "U.S. consumers’ inflation expectations highest in 8 years, NY Fed says") still running about twice the 2% target.

Whether we should [hike or skip at the June meeting will depend on how the data come in over the next three weeks,” Fed](https://www.financedigest.com/stocks-rally-wobbles-as-fed-hike-draws-near.html "Stocks rally wobbles as Fed hike draws near") Governor Christopher Waller said on Wednesday at an event in California.

I do not support stopping [rate hikes unless we get clear evidence that inflation](https://www.financedigest.com/uk-inflation-hits-9-4-bolstering-bets-on-big-boe-rate-hike.html "UK inflation hits 9.4%, bolstering bets on big BoE rate hike") is moving down towards our 2% objective.

(Reporting by Kevin Buckland; Editing by Edmund Klamann)


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