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US dollar hits seven-week peak after solid data; US debt risks in focus

The dollar rose to a seven-week high on Wednesday, boosted by safe-haven bets amid the risk of a U.S. debt default, with traders paring back bets on a Federal Reserve interest rate cut any time soon following solid U.S. consumer spending and housing data.

The U.S. dollar index, a measure of the greenback’s value against six major currencies, climbed as high as 103.12 , its strongest level since late March. It was last up 0.3% at 102.91.

The euro, meanwhile, dropped to a six-week low versus the dollar at $1.0811 . It last changed hands at $1.0830, down 0.3%.

“Recent data is painting a more resilient picture of U.S. growth compared to Europe,” said Joe Manimbo, senior market analyst at Convera in Washington.

“Moreover, elevated inflation and low unemployment on this side of the pond suggest any U.S. rate cuts are likely to materialize later rather than sooner.”

Wednesday’s data showed that U.S. single-family homebuilding increased in April, but data for the prior month was revised sharply lower.

Single-family housing starts, which account for the bulk of homebuilding, rose 1.6% to a seasonally-adjusted annual rate of 846,000 units last month. Data for March was revised down to show single-family homebuilding falling to a rate of 833,000 units instead of increasing to a pace of 861,000 units as previously reported.

That followed reports on Tuesday that U.S. retail sales rose in April, although lower than expected. But the underlying trend remained strong.

U.S. industrial production also gained, advancing 1% last month, easily topping expectations for a flat reading and up slightly from the revised 0.8% increase in March.

In late morning trading, the dollar rose 0.7% versus the yen to 137.37 yen, after earlier climbing to a two-week peak of 137.445 .

The dollar also traded higher against sterling, which fell 0.2% to $1.2465 . The pound fell as low as $1.2422, the weakest level since late April.

U.S. debt ceiling talks remained in focus.

President Joe Biden will continue talks with congressional leaders on the United States’ debt limit later this week, the White House said on Wednesday, as U.S. House of Representatives Speaker Kevin McCarthy vowed to avoid a default.

“I think at the end of the day, we do not have a debt default,” McCarthy said in an interview with CNBC.

Interest rate futures pricing implies no chance of a Fed rate cut in June, down from about a 17% chance seen a month ago.

“We expect some modest further increases in the dollar as markets continue to take out pricing for rate cuts,” said Commonwealth Bank of Australia strategist Joe Capurso. “A rate hike is possible this year, though the hurdle is high.”

Elsewhere, the Chinese yuan weakened past 7 per dollar on Wednesday for the first time in five months amid geopolitical tensions and more signs of China’s post-COVID-19 recovery losing steam.

In the offshore market, the dollar rose 0.2% to 7.00911 .

Currency bid prices at 11:07AM (1507 GMT)
Source: Reuters (Reporting by Tom Westbrook; Editing by Stephen Coates)

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