©Reuters. U.S. 100 dollar bills in an image taken in Tokyo August 2, 2011. REUTERS/Yuriko Nakao
LONDON (Reuters) – The dollar depreciated but continued to head for a third consecutive week of gains as markets increased their bets on high interest rates and nervously awaited the conclusion of US debt ceiling talks.
Yesterday’s probable progress in talks between Speaker Joe Biden and House Kevin McCarthy helped ease jitters, but markets remain alert to the risk of a default ahead of the long holiday weekend in the US with the memory Day Monday.
Traders are increasingly cautious on US Treasury bonds but the prospect of an imminent deal has helped improve sentiment and support the more risk-sensitive currencies at the expense of the dollar.
At around 11.15 am, the dollar index lost 0.16% to 104.08, just below the two-month high reached yesterday at 104.31. However, it remains oriented towards a weekly gain of around 0.8%.
Also supporting the dollar were growing expectations that the Fed would keep rates high for longer to contain inflation.
The euro and the pound rose despite struggling to recover recent losses against the US currency.
It is unclear whether the ECB can bring price growth within its 2% target over the next two years as inflationary pressures remain lingering in the bloc, according to Croatian central bank governor Boris Vujčić.
The single currency gains 0.1% against the dollar to 1.0729 dollars, but is not far from the two-month low of 1.0708 dollars reached in yesterday’s session.
(Translated by Luca Fratangelo, editing Sara Rossi)