US dollar

In early European trade on Monday, the US dollar saw a slight decline, although it remained near a five-week high due to ongoing inflation concerns. Simultaneously, the Turkish lira retreated amidst political uncertainties.

At 03:10 ET (07:10 GMT), the Dollar Index, which measures the performance of the greenback against a basket of six other currencies, registered a 0.1% decrease, reaching 102.420. Earlier during the session, it had climbed to 102.75, the highest level since April 10.

Last week, the Federal Reserve raised interest rates for the tenth consecutive time but hinted at a possible pause in the most aggressive round of policy tightening in the past four decades. The central bank plans to scrutinize economic data and assess the impact of previous tightening measures before making further decisions.

In April, consumer prices rose by 4.9%, a decrease from March’s 5% figure, but still significantly above the Fed’s targeted 2% inflation rate. This indicates that inflation remains persistent. Additionally, a survey revealed that long-term inflation expectations among US consumers reached their highest level since 2011.

Fed Governor Michelle Bowman stated on Friday that if inflation remains high and the labor market remains tight, additional interest rate hikes may be necessary. She emphasized the need for a sufficiently restrictive monetary policy stance to curb inflation over time.

The US dollar has also benefited from its status as a safe-haven currency amid concerns over a potential default, with no visible progress in reaching an agreement to raise the country’s debt ceiling.

The key figures involved, including President Joe Biden and House Speaker Kevin McCarthy, are expected to convene early this week to discuss budget negotiations after the cancellation of Friday’s meeting.

Analysts at ING remarked, “We still believe that investors are cautiously considering a scenario in which an adverse market reaction becomes necessary to break the deadlock. The lack of progress towards a deal can undoubtedly continue to provide support for the dollar.”

In other currency movements, USD/TRY rose by 0.4% to 19.6350, leading to the Turkish lira reaching a two-month low. This decline followed the inconclusive outcome of the weekend’s presidential elections, where neither President Recep Tayyip Erdogan nor rival Kemal Kilicdaroglu secured the required 50% threshold to avoid a runoff.

Consequently, the two candidates will compete directly on May 28, with Sinan Ogan no longer in contention, prolonging the period of uncertainty by another two weeks.

EUR/USD experienced a 0.2% increase to 1.0868 after hitting a fresh five-week low of 1.0845 earlier in the session. The Eurozone is set to release revised data on the first-quarter GDP on Tuesday, with economists expecting the economy to have expanded by a mere 0.1% between January and March.

GBP/USD rose by 0.1% to 1.2471, USD/JPY climbed 0.4% higher to 136.25, AUD/USD increased by 0.5% to 0.6678, while USD/CNY slightly declined to 6.9579. Earlier on Monday, the yuan had reached a more than two-month low against the dollar.


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