Dollar has an opportunity to raise rate expectations as focus turns to the labour market

The dollar weakened on Tuesday but has a chance to move higher in the short term as investor attention is likely to shift from the debt ceiling to the jobs report later this week, and that could solidify the prospects for another Fed hike next month.

Due to the fact that the chances of another 25 basis point hike by the Fed at the FOMC meeting in June are rising, experts said that another „strengthening jobs report this week will further reinforce these assumptions and encourage a stronger U.S. dollar in the short term.“

Economists on Friday expect data related to the U.S. economy to create 180,000 new jobs in May.

Rising prospects for further rate hikes have been supported by economic data that suggests inflation, especially core services, is still high.

Japanese banking firm MUFG said, „The lack of progress will keep pressure on the Fed to continue raising rates, but despite this, we argue that the Fed has already done enough by raising the monetary policy rate to above 5%, especially with credit conditions set to tighten further.“

The expected shift in focus away from the debt ceiling approval comes at a time when markets frequently assume that US politicians would vote to approve a debt ceiling bill (the „Fiscal Responsibility Act“) and prevent default.

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