By Samuel Indyk and Rae Wee

LONDON (Reuters) – The U.S. greenback inched larger for a second day on Tuesday – touching a six-month peak in opposition to Japan’s yen – on expectations that U.S. charges will stay larger for longer, whereas ongoing debt ceiling negotiations saved traders on edge.

Amongst a slew of Federal Reserve heavyweights who spoke on Monday, some hinted that the central financial institution had additional to go in tightening financial coverage.

Minneapolis Fed President Neel Kashkari stated that U.S. charges could must go “north of 6%” for inflation to return to the Fed’s 2% goal, whereas St. Louis Fed President James Bullard stated the central financial institution should want to lift one other half-point this 12 months.

Towards the Japanese yen, the buck rose to a close to six-month peak of 138.88 in Asia commerce. The greenback was final 0.1% decrease at 138.445 yen.

With U.S. policymakers sounding a desire for larger charges, merchants ramped up bets that the Fed funds fee will keep elevated, with markets pricing in round a 20% probability of a fee hike in June and the Fed funds fee seen at about 4.7% in December.

“Hawkish Fed feedback have lifted fee hike expectations and that’s one motive why the greenback is firmer throughout the board,” stated Niels Christensen, chief analyst at Nordea.

The euro slipped 0.2% to $1.0795 and is down round 2% for the month up to now in opposition to a stronger greenback, reversing two straight months of positive factors.

Euro zone enterprise progress slowed barely greater than thought however remained resilient this month because the bloc’s dominant providers business misplaced a bit of of its shine and the downturn within the manufacturing sector deepened, a survey confirmed on Tuesday.

Sterling was down 0.3% at $1.24.

Flash PMI figures from the UK and United States are due in a while Tuesday.

‘X-DATE’ LOOMS

Additionally on traders’ minds had been issues over a looming debt ceiling deadline in the US, which put a lid on threat sentiment and supported the safe-haven U.S. greenback.

President Joe Biden and Home Speaker Kevin McCarthy ended discussions on Monday with no settlement on the right way to elevate the U.S. authorities’s $31.4 trillion debt ceiling and can preserve speaking with simply 10 days earlier than a potential default.

“Markets are nonetheless anticipating some kind of deal to be reached,” Nordea’s Christensen stated.

“An settlement ought to spark some extra risk-on sentiment which might be unfavourable for the greenback,” he added.

Quick-end U.S. Treasury yields have jumped nonetheless, reflecting market jitters, with the yield on the one-month Treasury invoice final at 5.881%. Yields rise when bond costs fall.

The yield on the two-month Treasury invoice rose to a roughly three-week excessive of 5.556%.

Towards a basket of currencies, the U.S. greenback rose 0.1% to 103.41, not removed from a roughly two-month excessive of 103.63 hit final week.

The slipped 0.4% to $0.6625, whereas the fell 0.4% to $0.6258.

The resilient greenback saved the pinned close to its current five-month low and it final purchased 7.0661.

China on Monday saved its benchmark lending charges unchanged, as a weakening yuan and widening yield differentials with the U.S. restricted the scope for any substantial financial easing to shore up the nation’s post-COVID financial restoration.