Dollar nudges lower as US debt deal dents safe-haven appeal
LONDON (Reuters) – The dollar nudged down on Monday, pulling back from six-month peaks against the yen as a US debt ceiling deal lifted risk appetite in world markets and dented the greenback’s safe-haven appeal.
US President Joe Biden on Sunday finalized a budget agreement with House Speaker Kevin McCarthy to suspend the $31.4 trillion debt ceiling until Jan. 1, 2025, and said the deal was ready to move to Congress for a vote.
Having briefly touched a six-month high of 140.91 yen during Asia trade, the dollar drifted lower and was last down almost a third of a percent at 140.17 yen.
The dollar index, which measures the US unit’s value against a basket of other major currencies, was also a touch softer around 104.23 but not far from last week’s two-month peaks.
The pull-back in the safe-haven dollar came as world stocks rallied on the positive news from Washington, although trade was generally subdued with parts of Europe, including Britain, on holiday along with the United States.
“An initial risk-on reaction is likely as the cloud of US default has retreated,” said Charu Chanana, a market strategist at Saxo Markets in Singapore.
“But focus will quickly turn 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 Jan. 1, 2025, and cap spending in the 2024 and 2025 budgets.
In Europe, the euro slipped 0.2% to $1.0709, showing little immediate reaction to news of a snap election in Spain.
Spanish Prime Minister Pedro Sanchez said on Monday polling would take place on July 23 after his left-wing coalition government suffered heavy losses in regional ballots on Sunday.
Upbeat world sentiment pushed the risk-sensitive Australian and New Zealand dollars off last week’s six-month lows.
The Aussie rose 0.35% to $0.6541, while the kiwi edged 0.2% higher to $0.6058.
“We’ve got a risk-positive response so far to the debt deal 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.”
US Treasury Secretary Janet Yellen on Friday said the government would default if Congress did not increase the $31.4 trillion debt ceiling by June 5, having previously said a default could happen as early as June 1.