The U.S. dollar saw a significant boost, reaching a five-week high against major currencies on Monday. The currency’s rise was fueled by mounting inflation concerns domestically and global growth worries. However, the dollar’s gains were limited due to expectations of an impending rate cut by the Federal Reserve later this year. The Turkish lira, on the other hand, plummeted to a two-month low following elections that appeared to be headed for a runoff. Meanwhile, the Thai baht rallied nearly 1% after opposition parties in Thailand won a significant victory in weekend polls, though the formation of the next government remained uncertain due to military junta-influenced parliamentary rules. Supporting the greenback were higher Treasury yields, as a survey revealed a surge in U.S. consumers’ long-term inflation expectations, reaching the highest level since 2011. This development reignited the possibility of a Federal Reserve rate hike next month, with traders placing the odds at 11.5%. In addition, concerns over the U.S. government’s $31.4 trillion borrowing limit and a potential debt-ceiling standoff further boosted the safe-haven appeal of the dollar.
While the Federal Reserve’s outlook seemed more favorable to the markets, attention shifted to the debt-ceiling issue and the risk of a government shutdown. Investors also priced in anticipated rate cuts from July through the end of the year, expecting policymakers to ease credit conditions following the collapse of Silicon Valley Bank and a subsequent sell-off in regional U.S. lender shares. The dollar’s gains were partially curtailed, resulting in a slight increase in the euro and sterling against the greenback. The Australian dollar and New Zealand dollar also made gains against the dollar.Amid renewed concerns about a global recession, primarily driven by disappointing economic data from China, the Chinese yuan dipped to a two-month low against the dollar.
The People’s Bank of China kept the seven-day reverse repo rate unchanged, contributing to the currency’s decline. The dollar index, measuring the currency against six major peers, reached its highest level since April 10 but later eased slightly. The 10-year Treasury yield remained relatively stable, maintaining pressure on the yen, which weakened in response. Overall, the U.S. dollar’s rise was driven by inflation worries, global growth concerns, and the uncertainty surrounding the U.S. debt ceiling. However, expectations of rate cuts and limited gains against certain currencies tempered its upward momentum.