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Peter Davis

An writer at FOMOdrive

  • Jun 06, 2023
  • 2 min read

The US dollar soared to two-month highs

The dollar index rose to a level above 103.4, while the euro dropped to a value below $1.08, its lowest since the end of March.

The US dollar is being bolstered by fluctuations in the US debt ceiling and diminishing prospects of a Federal Reserve rate reduction.

Back the decisions of the Federal Reserve and its representatives.

For the third consecutive day, the dollar rose, building on Thursday's gains after President Biden and House Speaker Kevin McCarthy of the Republican Party took steps to prevent a catastrophic debt default.

On Wednesday, both President Biden and House Minority Leader Kevin McCarthy expressed their commitment to reaching an agreement quickly to raise the U.S. government's debt ceiling of $31.4 trillion. This is a positive development in the months-long standoff between Democrats and Republicans, according to Reuters.

Vanda Research notes that, in the short term, the ceiling story is a win-win for the dollar. If the situation worsens, the dollar will increase as a safe-haven asset. However, if the issue is resolved, the Federal Reserve may raise the rate one more time.

The dollar has been bolstered by a decrease in investors' expectations for a rate cut at the Federal Reserve's July meeting. On the day before, the probability of a rate cut was estimated at 16%, while a week earlier it was estimated at 39.9%. Now, the probability of a rate cut is 7.7%.

The likelihood of a rate hike at the June gathering increased to 37.8% from 10.7% a week prior and 28.4% the day before.

Philip Jefferson, Vice Chairman of the Federal Reserve, declared on Thursday that inflation is still too high and not enough has been done to reduce it. He noted that one year is not sufficient for the rate increase to have its full impact on demand.

Laurie Logan, President of the Dallas Federal Reserve, declared that the macroeconomic data does not suggest a shift away from a rate increase at the upcoming June meeting.

On Thursday, ECB Vice President Luis de Guindos emphasized that the central bank had already taken most of the steps necessary for tightening, which put extra strain on the euro.

The FxPro analyst team has warned that the current battle for the dollar could have a defining effect on history for many quarters to come. They have also cautioned that after the short-term surge that the dollar index is now experiencing, a long-term downward reversal will likely follow.

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