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  • The dollar has been depreciating following the US debt ceiling deal.
  • Risk funds rally
  • The Turkish lira hit a record low

LONDON, May 29, 2010 (FBC) – The dollar fell on Monday as the US debt ceiling deal boosted appetite in global markets and highlighted the greenback’s safe-haven appeal.

US President Joe Biden on Sunday reached a budget deal with House Speaker Kevin McCarthy to freeze the $31.4 trillion debt ceiling until January 1, 2025, and said the deal is ready to go to Congress for a vote.

Briefly touching a six-month high of 140.91 yen during Asian trade, the dollar edged lower and was last down 0.25% at 140.25 yen.

The dollar index, which measures the value of the U.S. unit against a basket of other major currencies, was also softer around 104.22 but not far from last week’s two-month highs.

A pullback in the safe-haven dollar came as global stocks rallied on upbeat news from Washington, although trading was generally subdued in parts of Europe, including Britain, on the holiday. Monday was also a holiday in America.

Charu Channa, market strategist at Saxo Markets in Singapore, said: “It could be an initial risk response as the US default cloud recedes.

“But the focus quickly returns to the fact that getting the deal is just one step in the process, and with both the House and Senate getting agreement by June 5th, it’s still a big question.”

The agreement was signed in It would end the debt ceiling on January 1, 2025, restore spending in the 2024 and 2025 budgets, restore unused Covid funds, speed up the permitting process for some energy projects and include additional work requirements for food assistance programs for poor Americans.

The choice of Spain

In Europe, the euro was down just 0.14% at $1.0717, showing a less immediate reaction to Spain’s snap election news.

Spanish Prime Minister Pedro Sanchez said on Monday that the vote would be held on July 23 after his left-wing coalition government suffered heavy losses in regional elections on Sunday.

Global sentiment pushed the risk-averse Australian and New Zealand dollars to six-month lows last week.

The Aussie rose 0.3% to $0.6539, while the Kiwi rose 0.2% to $0.6058.

“We’ve had a positive risk response to the debt deal news so far,” said Ray Attrill, head of FX strategy at National Australia Bank.

“Of course, there is still the need to get this debt deal in line, but I think the markets are happy to think that it will happen before the new X-date.”

US Treasury Secretary Janet Yellen said on Friday that the government would default if Congress did not raise the $31.4 trillion debt ceiling by June 5, after previously saying a default could happen by June 1.

Signs of economic strength this month have boosted the dollar and as concerns over the US debt ceiling recede, the cycle of US price hikes may not end as expected.

The dollar was up about 3% for the month against the Japanese currency. The dollar index gained 2.5% in May.

Data released Friday showed U.S. consumer spending rose more than expected in April and inflation edged higher, adding to signs of a still sluggish economy.

Money markets are pricing in a 62% chance the Fed will raise the Fed by 25 basis points in June, up from a roughly 26% chance a week ago.

Elsewhere, the Turkish lira hit a record low of 20.08 to the dollar after President Tayyip Erdogan secured victory in the country’s presidential election on Sunday, extending his increasingly authoritarian rule for a third decade.

Reporting by Dhara Ranasinghe, Ray Way in London and Singapore; Editing by Emelia Sithole-Matarise and Andrew Heavens

Our Standards: The Thomson Reuters Trust Principles.

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