The United States Dollar started the week on the back foot, extending its losing streak to five days as traders reprice Federal Reserve expectations and a debt ceiling showdown looms.
Overview
Even with Friday’s strong payroll data and yet another drop in the US unemployment rate – a substantial upside surprise – markets read the odds of another hike from the Fed are extremely slim. It’s clear that credit conditions and overall pressure on the US economy are expected to keep the Fed’s target rate where it is now, and we may well have reached the end of this tightening cycle, though Chair Powell did reserve the right to hike rates further if data warrant it.
Of more concern, perhaps, is the ongoing battle over the US’s debt ceiling currently in the hands of Congress. Treasury Secretary Janet Yellen has sounded as many alarms as she possibly can, raising the possibility of a default as soon as June 1. The last time the US fully defaulted on its debt, back in 2011, the nation lost its prized AAA credit rating. President Biden is holding out hope that the 14th Amendment will not have to come into play, but if the stalemate continues much longer, he may run out of options.
Looking ahead this week, US CPI and PPI data are due out Wednesday and Thursday, respectively. The Fed’s hope is that these numbers are, in fact, declining and the dreaded idea of “stagflation” will stay in the back of markets’ minds instead of rising to the forefront.
What to Watch Today…
- No major economic events are scheduled for today
- Monex USA Online is always open
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GBP ⇑
Even as UK banks are closed today in observance of the coronation of King Charles III over the weekend, Pound Sterling touched its strongest rate against USD in roughly a year this morning. Global risk sentiment has flipped over the last few days and the European continent currently reads more optimistic than the US, driving GBP prices up in particular. The recent data point to improving conditions in the broader UK economy while the US remains under a dark cloud.
CAD ⇑
The Loonie posted a fourth straight day of gains overnight and touched its strongest rate since April 14 against the Buck. Canada’s inflation outlook and overall economic condition appear to be stronger than those of the US, driving investors to it as risk tone improves everywhere except the United States. Oil futures prices also rose nearly 3 percent this morning, adding strength to the commodity-driven currency.
