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Investing.com-- The dollar rose to a near two-month high against a basket of currencies on Friday, boosted by hawkish comments from Federal Reserve officials and growing optimism over debt ceiling negotiations in Washington.
Both the dollar index and dollar index futures rose slightly and hovered near their highest levels since late-March. They were also set to gain nearly 1% for the week.
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The progress in talks between Democratic negotiators and Republicans aimed at avoiding a U.S. default fueled confidence in the market, as Both President Joe Biden and top congressional Republican Kevin McCarthy reiterated their determination to strike a deal soon to raise the government's $31.4 trillion debt ceiling.
This development eased fears of an unprecedented and economically devastating default, leading markets to revise their expectations of where U.S. interest rates could go.
Furthermore, data indicating a tight labor market, with the number of Americans filing new claims for unemployment benefits falling more than expected last week, also pointed to a hot labor market, which could invite more monetary tightening by the Fed.
The greenback also hit a six-month high against the yen, and pushed the euro to an over seven-week low.
On Thursday, two Fed policymakers expressed concerns that U.S. inflation was not cooling fast enough to allow the Fed to pause its rate hike cycle. This followed a string of similar comments from Fed officials through the week, with some calling for more rate hikes to tame overheated inflation.
While U.S. inflation has eased from near 40-year highs, it still remains well above the Fed's 2% annual target. Market participants are now looking forward to Fed Chair Jerome Powell's speech later on Friday for more insights into the central bank's monetary policy.
Fed fund futures prices show a 33% chance that the Fed could raise rates by another 25 basis points next month, compared with just about a 10% chance a week ago.
Disclaimer: This article was published with assistance from an artificial intelligence tool.
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