A U.S. debt ceiling agreement increased risk appetite in global markets and diminished the dollar’s appeal as a safe haven, causing the dollar to drift lower on Monday, retreating from six-month highs against the yen.

The $31.4 trillion debt ceiling will be suspended until Jan. 1, 2025, according to a budget deal that U.S. President Joe Biden reached with House Speaker Kevin McCarthy on Sunday. Biden said the agreement was ready for Congress to vote on.

The dollar dropped after briefly reaching a six-month high of 140.91 yen during the Asian session and was last down over a third of a percent at 140.17 yen.

The dollar index compares the dollar value to a basket of other major currencies, was also slightly lower at 104.23 but still very close to last week’s two-month highs.

Although trade was relatively quiet because the United States and some of Europe, including Britain, were both on vacation, the safe-haven dollar pulled back as global markets rose in response to the good news from Washington.

“An initial risk-on reaction is likely as the cloud of a U.S. default has retreated,” said Charu Chanana, a market strategist at Saxo Markets in Singapore.

But attention will soon shift to the fact that reaching an agreement is just the first step in a lengthy process, and getting both the House and Senate to agree by June 5 is still a tall order.

The agreement would suspend the debt limit through Jan. 1, 2025, and cap spending in the 2024 and 2025 budgets.

SPAIN ELECTION

The euro declined 0.2% to $1.0709 in Europe, with no immediate movement in response to the news of a quick election in Spain.

The election will be held on July 23, according to Spanish Prime Minister Pedro Sanchez, who announced this on Monday after his left-wing coalition government suffered significant defeats in regional elections on Sunday.

A positive global mood lifted the risk-averse Australian and New Zealand dollars off their six-month lows last week.

The Australian dollar increased by 0.35% to $0.6541, while the kiwi gained 0.2% to $0.6058.

In response to the debt transaction news, Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY), said, “We’ve got a risk-positive response so far.”

“There’s still the need to get this debt deal over the line, but I think markets are happy to travel on the presumption that it will get done before the new X-date.”

On Friday, U.S. Treasury Secretary Janet Yellen said the government would default if Congress did not increase the $31.4 trillion debt ceiling by June 5, having previously said a default could happen as early as June 1.

The dollar has been strengthened by speculation that the U.S. rate-hiking cycle may not end as soon as anticipated, given evidence of economic momentum and may continue to do so even as concerns about the country’s debt cap recede.

The dollar was on course for a monthly gain of about 3% against the yen. The dollar index has gained 2.5% in May.

Data on Friday showed U.S. consumer spending increased more than expected in April and inflation increased, adding signs of a still-resilient economy.

Money markets price in a roughly 62% chance that the Federal Reserve will raise rates by 25 basis points in June, versus a roughly 26% chance a week ago.

Elsewhere, the Turkish lira touched a record low at 20.10 per dollar after President Tayyip Erdogan secured victory in the country’s presidential election on Sunday, extending his increasingly authoritarian rule into a third decade.

Meanwhile, Bitcoin slipped 0.5% to $27,932, down from a three-week high hit earlier.