Dollar stabilizes ahead of Fed minutes as debt negotiations continue

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Investing.com - The U.S. dollar stabilized in early European trade Wednesday, remaining close to last session’s two-month high given the lack of progress in negotiations over raising the U.S. debt ceiling.

At 02:55 ET (06:55 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded largely unchanged at 103.395, just below the 103.65 two-month peak seen late Tuesday.

While talks between both political parties continue over the lifting of the U.S. government's $31.4 trillion debt ceiling, any progress seems to be hard won and there are few signs of a deal being reached anytime soon.

There’s now just over a week before the early-June deadline that U.S. Treasury Secretary Janet Yellen said is when it’s “highly likely” that her department will run out of sufficient cash to function as normal.

The minutes of the Fed’s May meeting, due later in the day, will be studied carefully for any cues on when the central bank plans to pause its rate hike cycle. 

A number of Fed speakers over the last week have talked in a hawkish manner about the central bank’s monetary policy, suggesting U.S. rates are likely to stay higher for longer.

EUR/USD rose 0.1% to 1.0780 ahead of the release of the widely watched German Ifo business climate index for May, which is expected to show a slight deterioration in confidence in Europe’s largest economy.

GBP/USD climbed 0.3% to 1.2452, bouncing off Tuesday’s one-month low, after U.K. headline CPI fell by less than expected to 8.7% in April from March's 10.1%, while core inflation, which excludes volatile energy and food prices, rose to 6.8% - the highest rate since March 1992.  

The Bank of England lifted interest rates by 25 basis points earlier this month, and these numbers are likely to reinforce expectations that the central bank will be forced to raise interest rates again in June.

USD/JPY edged higher to 138.64, having reached a six-month high overnight, the risk-sensitive AUD/USD fell 0.4% to 0.652, while NZD/USD slumped 1.7% to 0.6144 after the Reserve Bank of New Zealand hiked interest rates as expected, but signaled a potential pause in its nearly two-year-long rate hike cycle.