The United States Dollar is trading just a touch higher this morning, with most major currencies close to flat against the Buck after President Donald Trump’s “one big beautiful bill” on tax and spending very narrowly passed the House of Representatives
Overview
The bill is now headed to the Senate after many hardliners in the House were won over with a higher limit on SALT (state and local tax) deductions, countered by faster cuts to Medicaid and the end of many clean energy tax breaks. The bill would, though, continue to add to the UD debt in a substantial way, and as such includes a $4 trillion increase to the US debt ceiling, without which the Treasury Department outlined concern the government could default as soon as later this summer.
The bond market, however, is showing growing concern with potential “fiscal irresponsibility” and longer-dated government bonds from the US and around the world are surging. US 30-year treasuries are steadily trading near their highest rates in 18 months, and both US stocks and the Dollar lost ground yesterday. Generally speaking, when equities and currency move in the same direction, rather than their traditional inverse correlation, it signals concern for the macroeconomic picture of a nation. Investors around the world are questioning the US’ and other major governments’ abilities to keep borrowing at their current paces, especially given ongoing trade tensions and sticky inflation which reduce chances for substantial monetary policy easing. As such, risk assets around the world – with the notable exception of Bitcoin – have been trading weaker through the last few sessions, though FX moves in general remain fairly muted this morning. In a survey published by Deutsche Bank, a whopping 80% of participants thought the current trajectory of the US debt is unsustainable, and continued trade tensions are only adding further murkiness to the water.
The data calendar for the rest of this week is fairly quiet around the world ahead of the US Memorial Day holiday this coming Monday. Initial and continuing jobless claims were released this morning to little fanfare – while initial claims were slightly below expectations, continuing claims were higher than expected. US PMIs are due out at 9:45 this morning.
What to Watch This Week…
- S&P Global US PMIs, Thursday 9:45AM
- Monex USA Online is always open
The complete Economic Calendar can be found here.
JPY ⇑
Japanese Yen is the strongest performer in the G10 this morning, gaining roughly a tenth of a percent against USD in overnight trading. Treasury Secretary Scott Bessent and Japanese Finance Minister Kato released a joint statement following their meeting yesterday reaffirming their belief that foreign exchange rates should be market-determined, and the current USDJPY does reflect market fundamentals. Conversely, though, they also said that they did not discuss foreign exchange rates during their meeting. Japanese PMIs released yesterday also showed no real growth last month, which could put further pressure on expectations of a hike from the Bank of Japan later this year.
EUR ⇓
The single currency is trading roughly a third of a percent weaker against the Dollar this morning, failing to see any bolstering from news reports that the EU is looking to propose their own trade deal with the United States. The European Central Bank released its minutes from its previous meeting earlier this morning which suggested there is a good possibility for another interest rate cut coming in June, striking a more dovish tone than LaGarde’s press conference following the April decision to cut 25 basis points. Some members considered a 50 basis point cut, citing the economic pressure tariffs could put on the Eurozone economy.
