# Dollar nudges lower as U.S. debt ceiling deal dents safe-haven appeal
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-05-29
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Dollar nudges lower as U.S. debt ceiling deal boosts risk appetite
Meta Description: Discover how the U.S. debt ceiling deal impacts the dollar's safe-haven status, with insights on market reactions and potential implications for the
URL: https://financedigest.com/dollar-nudges-lower-as-u-s-debt-ceiling-deal-dents-safe-haven-appealhtml

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# Dollar nudges lower as U.S. debt ceiling deal dents safe-haven appeal

By Dhara Ranasinghe

LONDON (Reuters) -The dollar nudged lower on Monday, pulling back from six-month peaks against the yen as a U.S. [debt ceiling deal](https://www.financedigest.com/oil-gains-after-us-leaders-strike-debt-deal.html "Oil gains after US leaders strike debt deal") lifted risk appetite across world markets and dented the greenback’s safe-haven appeal.

U.S. President Joe Biden on Sunday finalised a budget agreement with House Speaker Kevin McCarthy to suspend the $31.4 trillion [debt ceiling](https://www.financedigest.com/world-stocks-climb-on-hopes-of-successful-debt-ceiling-outcome.html "World stocks climb on hopes of successful debt ceiling outcome") until Jan. 1, 2025, and said the deal was ready to move to [Congress for a vote](https://www.financedigest.com/u-s-congress-votes-to-strip-russia-of-most-favored-trade-status-ban-its-oil.html "U.S. Congress votes to strip Russia of ‘most favored’ trade status, ban its oil").

Having briefly touched a six-month high of 140.91 yen during Asia trade, the [dollar drifted 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") and was last down 0.25% at 140.25 yen.

The [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 U.S. unit’s value against a basket of other major currencies, was also a touch softer around 104.22 but not far from last week’s two-month peaks.

The pull-back in the safe-haven dollar came as world [stocks](https://www.financedigest.com/mutual-funds-vs-stocks-which-is-better.html "stocks") rallied on the positive news from Washington, although trade was generally subdued with parts of Europe, including Britain, on holiday. Monday was also a holiday in the United States.

“An initial risk-on reaction is likely as the cloud of U.S. default has retreated,” said Charu Chanana, a market strategist at Saxo Markets in Singapore.

But [focus will quickly turn](https://www.financedigest.com/sterling-falls-vs-dollar-as-focus-turns-to-uk-data.html "Sterling falls vs dollar as focus turns to UK data") to the fact that getting the deal is only a step in the process and an agreement from both the House and Senate by June 5 is still a big ask.

The agreement would suspend the debt limit through January 1 of 2025, cap spending in the 2024 and 2025 budgets, [claw back](https://www.financedigest.com/stocks-claw-back-as-markets-calm-after-evergrande-led-slide.html "Stocks claw back as markets calm after Evergrande-led slide") unused COVID funds, speed up the permitting process for some energy projects and include extra work requirements for food aid programmes for poor Americans.

## SPAIN ELECTION

In Europe, the euro was down just 0.14% at $1.0717, showing little immediate reaction to news of a [snap election](https://www.financedigest.com/canada-pm-trudeau-planning-snap-election-seeks-approval-for-covid-response-sources.html "Canada PM Trudeau planning snap election, seeks approval for COVID response – sources") in Spain.

Spanish Prime Minister Pedro Sanchez said on Monday the vote would take place on July 23 after his left-wing coalition government suffered [heavy losses](https://www.financedigest.com/russian-stocks-to-pare-some-heavy-losses-by-year-end-reuters-poll.html "Russian stocks to pare some heavy losses by year-end – Reuters poll") in regional ballots on Sunday.

Upbeat world sentiment pushed the risk-sensitive Australian and New Zealand [dollars off last week’s six-month lows](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").

The Aussie rose 0.3% to $0.6539, while the kiwi [edged 0.2% higher](https://www.financedigest.com/dollar-edges-higher-as-market-awaits-clues-from-u-s-fed.html "Dollar edges higher as market awaits clues from U.S. Fed") to $0.6058.

We’ve got a risk-positive response so far to the [debt deal](https://www.financedigest.com/european-shares-rise-on-us-debt-deal-optimism.html "European shares rise on US debt deal optimism") news,” said Ray Attrill, head of FX strategy at National Australia Bank.

“Obviously there’s still the need to get this debt deal over the line, but I think markets are happy to travel on the presumption that it will get done before the new X-date.”

U.S. Treasury Secretary Janet Yellen had on Friday said the government would default if Congress did not increase the $31.4 trillion [debt ceiling](https://www.financedigest.com/stocks-reach-one-month-high-on-u-s-debt-ceiling-hopes.html "Stocks reach one-month high on U.S. debt ceiling hopes") by June 5, having previously said a default could happen as early as June 1.

Talk that the U.S. [rate hiking cycle may not be over as soon](https://www.financedigest.com/ecb-could-slow-rate-hikes-but-bond-run-off-should-start-soon-knot-says.html "ECB could slow rate hikes, but bond run-off should start soon, Knot says") as hoped given signs of economic strength have bolstered the dollar this month and could support the currency even as U.S. [debt ceiling worries](https://www.financedigest.com/dollar-eases-before-inflation-data-with-nagging-worries-over-debt-ceiling-impasse.html "Dollar eases before inflation data, with nagging worries over debt ceiling impasse") abate.

The [dollar was on course for a monthly gain](https://www.financedigest.com/u-s-dollar-gains-ahead-of-fed-swedish-crown-falls-after-hike.html "U.S. dollar gains ahead of Fed; Swedish crown falls after hike") of about 3% against the Japanese currency. The [dollar index has gained](https://www.financedigest.com/dollar-gains-after-fitch-watch-heightens-debt-ceiling-jitters.html "Dollar gains after Fitch watch heightens debt ceiling jitters") 2.5% in May.

Data released on Friday showed that U.S. [consumer spending increased more than expected in April and 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") picked up, adding to signs of a still-resilient economy.

Money markets price in a roughly 62% chance that the [Fed will raise rates by 25 basis points](https://www.financedigest.com/fed-officials-still-leaning-to-75-basis-point-rate-hike-in-july.html "Fed officials still leaning to 75-basis-point rate hike in July") in June, versus a roughly 26% chance a week ago.

Elsewhere, the Turkish lira touched a [fresh record](https://www.financedigest.com/londons-ftse-100-hits-fresh-record-high-as-telecoms-surge.html "London’s FTSE 100 hits fresh record high as telecoms surge") low at 20.08 per dollar after President Tayyip Erdogan secured victory in the country’s presidential election on Sunday, extending his increasingly authoritarian rule into a third decade.

(Reporting by Dhara Ranasinghe in London and Rae Wee in Singapore; Editing by Emelia Sithole-Matarise and Andrew Heavens)


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