SINGAPORE (Reuters) – The dollar touched a six-month high against the yen on Tuesday as expectations grew that U.S. rates will remain higher for longer and as the debt ceiling impasse kept risk sentiment fragile.<\/p>\n\n\n\n
Among a slew of Federal Reserve heavyweights who spoke on Monday, some hinted that the central bank still has more to go in tightening monetary policy.<\/p>\n\n\n\n
Minneapolis Fed President Neel Kashkari said that U.S. rates may have to go “north of 6%” for inflation to return to the Fed’s 2% target, while St. Louis Fed President James Bullard said the central bank may still need to raise another half-point this year.<\/p>\n\n\n\n
Against the Japanese yen, the greenback rose to a near six-month peak of 138.88 in Asia trade, reflecting the stark contrast between a still-hawkish Fed and an ultra-dovish Bank of Japan. The dollar was last 0.11% lower at 138.44 yen.<\/p>\n\n\n\n
“Markets are pricing for higher rates for longer by the Fed,” said Tina Teng, market analyst at CMC Markets. “U.S. inflation is still way above the target … and near-term, the economy is running resilient.<\/p>\n\n\n\n
“I don’t think the Fed will just start cutting rates anytime soon.”<\/p>\n\n\n\n
Money markets are pricing in a roughly 20% chance that the Fed will deliver another 25-basis-point hike next month and have scaled back expectations of Fed rate cuts later this year, with rates seen holding above 4.7% by December.<\/p>\n\n\n\n
Similarly, the greenback kept the\u00a0offshore yuan\u00a0pinned near its recent five-month low and it last bought 7.0586.<\/p>\n\n\n\n
China on Monday kept its benchmark lending rates unchanged, as a weakening yuan and widening yield differentials with the United States limited the scope for any substantial monetary easing to shore up the country’s post-COVID economic recovery.<\/p>\n\n\n\n
The euro slipped 0.05% to $1.0808 and is down nearly 2% for the month thus far against a stronger dollar, reversing two straight months of gains.<\/p>\n\n\n\n
Sterling was largely unchanged at $1.2436.<\/p>\n\n\n\n
Flash PMI figures in the euro zone, the UK and the United States are due later on Tuesday, following Japan’s PMI release earlier in the day.<\/p>\n\n\n\n
Japan’s manufacturing activity expanded for the first time in seven months in May, while the service sector hit record growth, as the post-COVID recovery shored up business conditions.<\/p>\n\n\n\n
‘X-DATE’ LOOMS<\/p>\n\n\n\n
Also on investors’ minds were concerns over a looming debt ceiling deadline in the United States, which put a lid on risk sentiment and supported the safe-haven U.S. dollar.<\/p>\n\n\n\n
President Joe Biden and House Speaker Kevin McCarthy ended discussions on Monday with no agreement on how to raise the U.S. government’s $31.4 trillion debt ceiling and will keep talking with just 10 days before a possible default.<\/p>\n\n\n\n
“The debt ceiling drama has reached a fever pitch in recent weeks,” said economists at\u00a0Wells Fargo\u00a0(NYSE:WFC). “The policy disagreements among lawmakers appear wide as we enter crunch time.”<\/p>\n\n\n\n
Short-end U.S. Treasury yields have jumped, reflecting market jitters, with the yield on the one-month Treasury bill last up more than 10 bps at 5.7580%. Yields rise when bond prices fall.<\/p>\n\n\n\n
The yield on the two-month Treasury bill rose to a roughly three-week high of 5.4690%.<\/p>\n\n\n\n
Against a basket of currencies, the U.S. dollar steadied at 103.25, not far from a roughly two-month high hit last week.<\/p>\n\n\n\n
The\u00a0Aussie\u00a0slipped 0.02% to $0.6651, while the\u00a0kiwi\u00a0gained 0.02% to $0.62865.<\/p>\n