IBNS: The euro experienced a decline on Thursday as Germany, the largest economy in Europe, slipped into recession, Reuters reported.
Meanwhile, the US dollar reached a two-month high, driven by the demand for safe-haven assets as concerns grew regarding a potential default by the United States.
These worries were further amplified by the ratings agency Fitch, which placed the United States’ “AAA” debt ratings on a negative watch, the report said.
This indicates a possible downgrade if lawmakers fail to reach an agreement to raise the debt limit.
Paradoxically, the greenback has benefited from the demand for safe-haven assets, despite the ongoing slow progress in debt ceiling discussions, said the report.
With just a week remaining until the June 1 “X-date,” when the Treasury has warned of its inability to fully meet financial obligations, the urgency for a resolution has contributed to the dollar’s advantageous position, said the report.
The U.S. dollar index, which gauges the currency against six major peers and has a significant focus on the euro, increased by up to 0.3%, reaching 104.16, its highest level since March 17.
Conversely, the euro experienced a slight decline of approximately 0.2%, causing it to hit a two-month low at $1.0715.
The British pound also saw a minor decrease of 0.1%, momentarily touching its lowest point since April 3 at $1.2332.
Against the Japanese yen, the dollar reached its strongest level since November 30 at 139.705 but later dipped by 0.1% to 139.345.
The U.S. currency has been supported by reduced expectations of interest rate cuts by the Federal Reserve this year, as the economy has demonstrated resilience despite the central bank’s previous aggressive tightening measures.
Traders in the U.S. money market have adjusted their expectations for Fed rate cuts to just a quarter point in December, down from the previous projection of up to 75 basis points.
Furthermore, the likelihood of another quarter-point rate hike in June has increased to approximately 1-in-3, as several Fed officials have recently adopted more hawkish stances.
This shift comes as consumer inflation remains around twice the 2% target, and the minutes from the latest meeting indicate that “almost all” policymakers perceive upside risks to inflation.
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