© Reuters. FILE PHOTO: A photo of a US 100 dollar banknote taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao
By Ankur Banerjee and Alun John
SINGAPORE/LONDON (Reuters) – The dollar on Wednesday was just shy of a two-month high as U.S. debt talks continued, while the pound settled and softened after stronger-than-expected growth in Britain.
Also in focus was the New Zealand dollar, which fell 1.8% after the central bank announced it would end rate hikes.
The benchmark US dollar against its six major peers was at 103.5, down from Tuesday’s 103.65, the highest since March.
Tensions in Washington on debt negotiations have helped boost the dollar, although it could lead to instability and push the country into recession, as investors think it could trigger a global financial crisis.
Treasury Secretary Janet Yellen has warned that the government may no longer have enough cash to pay off all of its debt as soon as June 1, increasing the risk of a default.
Investors largely avoided spending money as another round of negotiations between the White House and Republicans to raise the borrowing limit ended on Tuesday with no sign of progress.
Better-than-expected economic data and dovish comments from Federal Reserve policymakers have also supported the dollar as markets reassess early bets on US rates for the end of the year.
Markets are raising rates by a 27% chance of a 25% hike in June, the CME FedWatch tool showed, after the Fed’s quarterly rate hike earlier this month.
Investors will get more on sentiment from the minutes of the Fed’s May meeting, which is due to take place later in the day.
“We suspect that the main issue among the board’s leadership is that the stimulus process may be over,” said Kevin Cummins (NYSE: ), chief economist at NatWest Markets.
However, “recent statements from several officials seem to be interested in a hike or additional hikes, and these ideas can be seen in a few minutes.”
In Europe, the euro was stronger by 0.17% at $1.0786 and the pound was the lowest at $1.24105, having already risen to 0.44% to $1.247 in the session after inflation in Britain slowed more than the markets expected. another rate hike from the Bank of England.
“There can be no sugarcoating of this data and it is the seriousness of inflation that sets the UK apart from other major economies in having a serious inflationary problem,” MUFG analysts said in a note to clients.
They said that the British currency should be supported by higher rates but there is a chance that the growth of the difference in inflation rates in Britain will hinder the credibility of the policy and the increase in money that will reduce the growth and affect the performance of the pound.
Earlier, the Reserve Bank of New Zealand raised interest rates by 25 basis points, as expected, to more than 14 years and 5.5% in previous predictions.
“The RBNZ was surprisingly hawkish in its messages and forecasts,” said Carol Kong, an investment analyst at the Commonwealth Bank of Australia (OTC:) (CBA). “Contrary to market expectations, the RBNZ kept the interest rate target at 5.50% and signaled that its tightening is over.”
The decline is almost three weeks and was last 1.7% at $ 0.6140. The Australian dollar eased 0.5% to $0.6578.
Elsewhere, the yen was steady at 138.63 to the dollar, after touching 138.91 overnight, the softest in six months.