US Dollar Rises as Market Weighs Fed Minutes

US Dollar Rises as Market Weighs Fed Minutes

The United States dollar rises as a lack of progress in U.S. debt ceiling talks drives investors towards safe-haven assets, Unicredit Research says. Last night’s release of the May FOMC minutes has seen the dollar push further ahead as expectations for another rate hike from the Fed this summer firm up.

Given USD overnight rate now at 5%, shorting dollars is an expensive proposition. Until hard US data makes the slowdown case, the dollar can hold gains. The dollar’s gains come even though Fitch Ratings put the U.S. on negative watch, Unicredit analysts say in a note.

“USD/JPY hitting new year-to-date highs close to 140 is further proof of the current strength of the greenback [dollar].”

White House and Republican representatives failed to reach a deal on raising the debt ceiling in talks Wednesday ahead of a June 1 deadline.

 USD/JPY rises 0.1% to 139.504 after hitting a 25-week high of 139.703 earlier, according to FactSet. The DXY dollar index gains 0.1% to a near 10-week high of 104.088.

Yesterday’s surprise release of April UK inflation at 8.7% year on year certainly set the cat amongst the pigeons in the UK gilt market.

“Our debt strategists think the Gilt curve should invert further. While this is not welcome news for UK growth prospects, in the past we have found inverted yield curves positive for currencies.

“That means our summer target for EUR/GBP near 0.8800 may be hard to achieve after “, ING Economics analysts said.

The EUR/GBP bias is probably now for a retest of the 0.8650 area, and we’ll definitely have to see some softer wage/price data over the coming weeks for the Bank of England to be diverted from what looks like another 25bp hike on June 22nd.

For GBP/USD, the 1.2340/50 area seems decent support below which the downside could open up to the 1.2200 area.

Re-pricing of China is not helping the euro

EUR/USD continues to edge lower – largely on the back of the stronger dollar. Not helping either is the re-pricing of China’s growth prospects, as evidenced most starkly with ‘Dr Copper’ breaking back below USD8000/MT. 

Additionally, the focus is on the People’s Bank of China’s money market operations, where generous liquidity adds are raising speculation over possible rate cuts.

The euro tends to do well when China is doing well, given the large share of manufacturing in the Eurozone economy. Doubts over Chinese growth prospects and growing views that there remains unfinished business in the Fed’s tightening cycle are weighing on EUR/USD.

 It has some decent support around the 1.0715/25 area, below which there is not much support until 1.0500/0515. That is the risk unless tomorrow’s US April core PCE deflator shows a sizable fall. #US Dollar Rises as Market Weighs Fed Minutes

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