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Peter Davis

An writer at FOMOdrive

  • Jun 06, 2023
  • 2 min read

The US dollar hit new highs since the end of March

On Wednesday, the dollar rose to its highest level since the end of March, due to the weakening of the yen.

The dollar index has reached a level of 103.1 or higher for the first time since March 27.

The likelihood of rate cuts in the US in the near future has decreased somewhat.

President Biden is certain that the problem of increasing the US national debt limit will be solved.

Reuters reported that the dollar rose on Wednesday, taking advantage of its status as a safe-haven asset in the face of the potential for a US government debt default.

Joe Biden, the President of the United States, and Kevin McCarthy, a senior Republican Congressman, have come closer to a consensus on increasing the US national debt ceiling, though no final decision has been made.

Rabobank notes that a crushing blow to the US economy can only lead to negative repercussions in the global economy and a decrease in risk appetite, resulting in the purchase of protective assets.

Comments from Fed officials weakened expectations of rate cuts in the US.

Austan Goolsby, President of the Chicago Federal Reserve, stated that it is "too early to discuss rate cuts" yet, while Loretta Mester, President of the Cleveland Federal Reserve, commented that rates have not yet reached a level where the Fed could maintain them in the face of persistent inflation.

The probability of a rate cut at the meeting in June dropped to 0% from 10.9% the previous month. Meanwhile, rate cut expectations for the meeting in July decreased to 15.3% from 42% the prior week.

On Wednesday, President Joe Biden expressed his assurance that a budget agreement could be reached, warning that it would be catastrophic if the US was unable to pay its debts. He stated that "all leaders concur that we will not default." A press conference is scheduled for Sunday to discuss the national debt ceiling.

ING believes that the dollar will soon start to decrease over a few quarters (or even a few years) as the Federal Reserve finishes its tightening cycle and the credit crunch increases the probability of a US recession.

It is possible that EUR/USD could reach 1.20 by the end of the year. Nevertheless, the dollar index may continue to rebound in the short-term, potentially reaching the range of 103.5 - 104 due to the crisis surrounding the debt ceiling increase.

BMO predicts that the US dollar and the Canadian dollar will become weaker compared to the major European currencies in the upcoming months, due to the European central banks' stricter monetary policy.

UBS is certain that the US dollar will become weaker against major currencies in the next 6-12 months.

Commerzbank predicts that the US dollar will weaken due to the resolution of the debt dispute, which is likely to lead to an early Federal Reserve rate cut.

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