Global overview
The U.S. dollar rolled to new highs only to ease off its peaks as markets cheered Washington moving a big step closer to raising America’s debt ceiling. Rivals from Canada and Europe rebounded from multiweek lows. The U.S. dollar index was on pace to halt a two-month slide and post only its second month of gains of 2023, as data depicting a resilient U.S. economy and stubbornly high inflation backed the case for another Federal Reserve interest rate hike. President Biden and House Speaker McCarthy reached what had proven an elusive deal to raise America’s $31.4 trillion debt limit. The deal, which needs to be approved by Congress, takes a first ever U.S. debt default off the table and served as an excuse for market players to wade back into risk assets like equities and currencies like the euro and sterling along with commodity-oriented units of Canada and Australia. Month-end positioning is catching up with the greenback, prompting some to take profit with the buck poised for its first monthly advance since February. America’s May employment report on Friday will offer one of the next directional cues for the greenback. Forecasts call for slower, though still sturdy, hiring of 195,000, compared to April’s increase of 253,000. Unemployment is expected to inch up from 53-year lows of 3.4%.
Euro bounces off 10-week bottom
The euro fell to fresh lows and its weakest in 10 weeks against the greenback after new data offered evidence of the bloc’s economy losing momentum. Euro area economic sentiment fell more than expected to 96.5 in May, compared to forecasts of 98.9 from a downgraded 99.0 in April. Steady signs of moderating economic momentum suggest less scope for the European Central Bank to raise borrowing rates to tackle inflation. New numbers on area inflation and unemployment are due Thursday with the former forecast to cool to a 6.3% annual pace in May from 7% in April.
Sterling rises above 7-week lows
Market exuberance over Washington reaching an elusive deal to raise the debt ceiling and avoid economic chaos was cheered by a range of risk assets including sterling. The UK pound bounced above last week’s seven-week low, helped partly as GBP/USD has so far managed to hold above key support at 1.23. Scope for sterling weakness has proven somewhat limited thanks to the market view that Britain could be home to the highest interest rate among major central banks including the Fed and ECB. Still, higher rates are not a clear-cut positive for the pound as tighter monetary policy doesn’t bode well for the UK growth outlook.
Loonie steadies ahead of data
Canada’s dollar recovered from four-week lows against its U.S. rival as markets stepped back from safer bets like the greenback on news that Washington moved a big step closer to raising the nation’s debt limit. Weaker oil below $72 checked the loonie’s bounce off Friday’s four-week low above 1.3650. USD/CAD was modestly higher for the month after ending April at 1.3550. Canadian growth data Wednesday is forecast to paint a mixed picture of the economy. Canada’s economy likely accelerated at a 2.5% annual rate in the first quarter after it stalled during the fourth quarter. March growth is expected to contract 0.1% after it expanded by that amount in February.
Dollar index on track to snap 2-month slide
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: May 29-Jun 2
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
