US dollar falls from five-week high as data, debt ceiling weighs

SINGAPORE, May 15 (Reuters) – The dollar fell from a five-week high on Monday, pressured by a weak New York state manufacturing index, as it consolidated gains made last week amid fears over the debt ceiling and the U.S. economy.

In emerging markets, the Turkish lira sank to a near-record low as the weekend election looked set to run, while the Thai baht rallied after a more decisive election result.

The dollar took an early dive after data showed the New York Federal Reserve’s Empire State manufacturing index plunged to -31.8 this month from a reading of 10.8 in April.

Action Economics wrote in its blog that the Empire State drop was the biggest decline since April 2020 and the lowest since January’s three-year low of -32.9.

The dollar’s fall came after it had its best weekly performance on Friday since last September.

“I think we’re just consolidating today after a big move in the dollar last week,” said Marc Chandler, market strategist at Bannockburn Global Forex in New York.

“The things that have weighed on the dollar recently have not gone away, such as the debt ceiling, although there has been some progress.”

President Joe Biden is scheduled to meet with congressional leaders on Tuesday for face-to-face talks, a day before he leaves for a meeting with the Group of Seven nations in Japan.

Although the two sides appeared nowhere near a deal, the White House has not ruled out the annual spending caps that Republicans say must accompany any increase in the nation’s $31.4 trillion debt limit.

By late morning, the dollar index, which measures the greenback’s value against six major rivals, was down 0.2% at 102.48. Earlier in the session, the dollar touched a five-week high of 102.75.

Analysts have said many factors could be behind the dollar’s recent strength, including worries about US inflation and safe-haven buying fueled by fears over the debt ceiling gap and global economic growth.

Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said a rise in US bond yields over the past two days had supported the currency.

US interest rates rose on Friday and Monday after a University of Michigan survey of consumers’ long-term inflation expectations jumped to the highest since 2011.

That put a possible Fed rate hike next month back in play, with traders pegging those odds at 17%.

The euro rose 0.2% against the dollar to $1.0875, recovering after falling 1.54% last week.

The dollar was up 0.3% against the yen at 136.14, while the pound was 0.5% higher at $1.2513, recovering from last week’s 1.45% drop.

Elsewhere, the dollar was last up 0.5% at 19.67 Turkish lira. It earlier jumped to 19.7 for the first time since March 10, when it hit a record high of 19.8 on a volatile trading day.

The dollar slipped 0.5% to 33.81 baht in onshore Thai trade. Thailand’s opposition parties secured an impressive election victory on Sunday.

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Bid prices in currency at 10.49 (1449 GMT)

Editing by Kim Coghill

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