By Rae Wee
       SINGAPORE, May 26 (Reuters) - 
    The dollar eased on Friday but remained near a two-month
high against its major peers, buoyed by expectations that U.S.
interest rates could remain higher for longer.
  
        Debt ceiling negotiations between U.S. President Joe
Biden and top congressional Republican Kevin McCarthy also 
    continued
     to cast a shadow over the market mood, though news that the
two are closing in on a 
    deal
     aided investor sentiment and caused the greenback to pause
its recent rally.
  
        The dollar edged away from a six-month high against the
yen  JPY=EBS  in Asia trade and last stood at 139.77, having
reached 140.23 yen in the previous session, its highest since
November.
  
        Against a basket of currencies, the U.S. dollar  =USD 
slipped 0.13% to 104.09, just off Thursday's two-month high of
104.31.
  
        The index was, nonetheless ,on track for a third
straight weekly gain of more than 0.8%, as traders ramped up
their expectations of how much further rates could rise in the
United States.
  
    "Recent moves in currencies have been mainly driven by a
sharp repricing of FOMC policy," said Carol Kong, a currency
strategist at Commonwealth Bank of Australia (CBA).
    Money markets are now pricing in a 40% chance that the
Federal Reserve will deliver another 25-basis-point rate hike at
its policy meeting next month, while expectations that the Fed
will begin cutting rates later this year have been scaled back.
 FEDWATCH 
    Data released on Thursday showed that the number of
Americans filing new claims for unemployment benefits increased
moderately last week to 229,000, coming in lower than
expectations.
        The British pound and the euro were struggling to recoup
their losses against a stronger dollar.
  
        Sterling  GBP=D3  gained 0.13% to $1.2337, though it was
still headed for a weekly loss of more than 0.8%. The euro
 EUR=EBS  rose 0.15% to $1.0741, but was not far from its
two-month low of $1.0708 hit in the previous session.
  
    The single currency was also weighed down by confirmation
that Europe's largest economy Germany slipped into a recession
in early 2023.
    
    CHINA'S RECOVERY STALLS
    Among other currencies, the Aussie  AUD=D3  was last 0.22%
higher at $0.6520. It slumped to a more than six-month low of
$0.6490 earlier in the session, further pressured by China's
faltering post-COVID economic recovery.
        "Data in the near-term for China will remain pretty weak
and continue to point to a soft consumption recovery," said
CBA's Kong. "That will be another weight to the Aussie."
    The Australian dollar is often used as a liquid proxy for
the Chinese yuan.   
    The kiwi  NZD=D3  rose 0.15% to $0.6071, though it was
headed for a weekly loss of more than 3%, its largest since
September, after the Reserve Bank of New Zealand earlier this
week stunned markets by signalling it was done tightening.
    China's yuan rebounded from a near six-month low against the
dollar as some major state-owned banks sold the U.S. currency to
prevent the yuan from sinking further. CNY/ 
        "General renminbi depreciation is back in play," said
Alvin Tan, head of Asia FX strategy at RBC Capital Markets.



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 (Reporting by Rae Wee; Editing by Christian Schmollinger and
Kim Coghill)
 ((Rae.Wee@thomsonreuters.com;))