Gold prices rose on Friday after the dollar retreated from a two-month high, although bullion was poised for a third straight weekly drop as traders assessed the progress of the U.S. debt ceiling negotiations and the Federal Reserve's next policy move.

Spot gold rose 0.4% to $1,947.86 per ounce by 0452 GMT, after hitting its lowest since March 22 at $1,936.59. U.S. gold futures edged up 0.2% to $1,948.40.

Still, bullion lost 1.5% so far in the week.

There is an overwhelming market expectation that the debt crisis will be resolved, and a still overall tightening horizon from the Fed that is expected to put some downward pressure on gold, said Clifford Bennett, chief economist at ACY Securities.

"The Fed may indeed pause at the next meeting, as they should, given both the debt ceiling crisis, even with a resolution, and the ongoing, albeit in the background, banking crisis," Bennett said, adding some investors may be buying the dips in gold price.

The dollar dipped 0.2%, but hovered near its highest level since March 17. Benchmark Treasury yields were also near highs seen in March.

U.S. President Joe Biden and top congressional Republican Kevin McCarthy on Thursday appeared to be nearing a deal to cut spending and raise the government's $31.4 trillion debt ceiling, with little time to spare to head off the risk of default.

On the interest rate front, markets are now pricing in a 37.8% chance of a 25-basis-point hike in June and seeing cuts no sooner than September, according to the CME FedWatch tool.

Gold could still reach $1,980 or close to the $2,000 level in June, supported by steady physical demand in key markets such as India and China and overall economic uncertainty, said Ajay Kedia, director at Kedia Commodities in Mumbai.

Spot silver rose 0.7% to $22.94, platinum and palladium each advanced 0.8% to $1,028.71 and $1,428.38, respectively.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Subhranshu Sahu, Sonia Cheema and Sherry Jacob-Phillips)