Resilient Dollar Scales Seven-Week Summit Following Encouraging Economic Indicators and Debt Ceiling Optimism

The US dollar reached a new seven-week zenith on Thursday, buoyed by a second wave of robust economic data that dampened speculation about a potential Federal Reserve easing, and fostered by hopeful sentiments surrounding an imminent US debt ceiling deal to prevent a potential default.

Fresh reports on Thursday revealed a less-than-projected number of initial jobless claims in the US, clocking in at 242,000 for the past week, as opposed to an anticipated figure of 254,000.

Furthermore, business index numbers from the Philadelphia Federal Reserve offered a positive surprise. Contrary to market predictions of a -19.8 contraction, the business index fell to a milder -10.4.

These numbers sparked a rally in the dollar index, which ascended to a fresh seven-week high of 103.38 before settling at 103.34, up by 0.5%. Similarly, the dollar marked a new five-month high against the yen at 138.39, finally leveling at 138.35, an uptick of 0.5%.

The markets have now factored in approximately a 20% likelihood of the Federal Reserve increasing its interest rate during the June meeting. This stands in contrast to the speculation about a 20% chance of a rate cut that was prevalent about a month ago.

Traders have also set the interest rate for the Fed's meeting in December at 4.525%. This implies an easing of around 55 basis points by the end of the year, down about 5 basis points from the previous day.

Alongside these economic indicators, the spotlight remains on the negotiations surrounding the debt ceiling. President Joe Biden and leading congressional Republican Kevin McCarthy expressed their commitment on Wednesday to swiftly reach an agreement to increase the government's $31.4 trillion debt ceiling. The affirmation follows their decision to engage in direct talks after a months-long impasse, signifying an encouraging turn of events in the protracted deadlock.