Dollar weighed down by US default risks; Aussie, yuan hurt by weak China data


Tokyo, May 16 (BNA): The US dollar remained under pressure on Tuesday, weighed down by the risk of default in the United States, as the standoff between Democrats and Republicans over raising the debt ceiling showed few signs of resolution.

The Australian dollar turned from a small early gain into a loss after economic data from major trading partner China came in below analysts’ expectations, adding to evidence of a faltering COVID recovery. The yuan fell to its lowest level in two months.

The US dollar index – which measures the currency against a basket of six major peers – was little changed at 102.47. Overnight, it fell from a five-week high to lose 0.26%, Reuters reported.

The dollar had rebounded last week on safe-haven demand amid weak Chinese economic data and a sudden jump in US consumer inflation expectations, which puts the risks of a June Fed rate hike once again.

This week, though, the looming borrowing limit — which Treasury Secretary Janet Yellen has reiterated could be hit as soon as June 1 — has made its way to the forefront of investors’ minds.

President Joe Biden has expressed confidence that an agreement can be concluded in time for an expected meeting with congressional leaders later on Tuesday. But Republican House Speaker Kevin McCarthy said the two sides remain far apart.

said Bart Wakabayashi, branch manager on State Street in Tokyo.

“The interesting thing is that the dollar is weak, and usually when there are risks, people buy dollars,” he said.

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“So there’s a huge breakdown in association, and when associations don’t work, people don’t know what to do.”

The euro, which has the largest weighting in the dollar index, was little changed at $1.0870 on Tuesday, after bouncing off a five-week low overnight.

The pound fell 0.13% to $1.2515, after rising 0.67% from Monday.

The yen, which was hit by a wider spread between US and Japanese long-term yields, retreated from its lowest level in nearly two weeks.

The dollar lost 0.08 percent to 135.975 yen, after rising to 136.32 on Monday.

The 10-year Treasury yield fell to around 3.49% in Tokyo from 3.511% overnight.

The Australian dollar, which is not part of the dollar index, erased small early gains ahead of Chinese retail sales and industrial production data, then sank after the release. It was last down 0.33% at $0.6678.

“It appears that the Australian dollar’s upside has been masked for some time by investor concerns about the future of China,” said Sean Callow, chief foreign exchange analyst at Westpac.

“Today’s data will put the Australian dollar back on its heels,” he added, predicting that the currency could retreat to around 0.6645, which is the lower end of the recent trading range.

The dollar rose 0.2 percent to 6.9723 yuan in the foreign market, after touching 6.9749 on Monday for the first time since March 10.

WWA






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