Dollar hits to five-week peak on debt, budget deal

By Richard Leong

NEW YORK (Reuters) - The dollar rose on Tuesday to near a five-week high against a basket of currencies after President Donald Trump and U.S. lawmakers reached a two-year deal lifting government borrowing limits to cover spending.

The U.S. Treasury now can ramp up short-term borrowing to rebuild a cash pile that has fallen to about $195 billion from $423 billion in late April, Morgan Stanley analysts said.

An increase in U.S. borrowing would pare money in the banking system, which is seen as supportive for the greenback.

"Excess reserves should decline, lending (dollar) support," Morgan Stanley strategists Hans Redeker, Gek Teng Khoo and Sheena Shah wrote in a research note.

The dollar's appeal got a boost after the International Monetary Fund raised its forecast on U.S. growth in 2019 while lowering its global growth outlook. Support also came from a Bloomberg report that U.S. negotiators will head to China on Monday for face-to-face trade talks.

In late U.S. trading, an index that tracks the greenback versus the euro, yen, sterling and three other currencies <.DXY> was up 0.47% at 97.716. It touched 97.718, its highest level in about five weeks.

The euro weakened broadly as investors geared up for news of fresh stimulus from the European Central Bank. Money markets have trimmed bets on a 10-basis-point deposit rate cut, but analysts expect dovish guidance and possibly more generous terms for planned multi-year loans.

"The market has doubts in the ECB keeping its limited powder dry this week, the driving force behind the euro's leg lower," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The single currency fell to $1.1148, its lowest since May 31. It held at $1.1150, down 0.52% on the day.

The euro dipped 0.16% to 120.72 yen after touching 120.49, its lowest since Jan. 3.

Britain's pound slipped on news Boris Johnson, who promised to exit the European Union with or without deal by the end of October, will replace Theresa May as prime minister.

The pound was down 0.31% at $1.244, within striking distance of a 27-month low of $1.2382 reached last week. It was 0.23% higher against euro at 89.615 pence after hitting a six-month low of 90.51 last week.

(Reporting by Saikat Chatterjee in LONDON; editing by Catherine Evans and David Gregorio)

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