Home Daily Commentaries USD rallies amid debt ceiling discussion and voting

USD rallies amid debt ceiling discussion and voting

Daily Currency Update

The USD rallied today after the debt ceiling discussion progressed with the House Rules Committee advancing the debt-ceiling bill to the House of Representatives by a close vote of 7 to 6, causing the markets to adopt a rather cautious tone. Numerous Republicans noted their disagreements with the debt ceiling bill, which is up for debate and voting on the House floor today before it moves to a final Senate vote. Another macroeconomic development behind the greenback’s two-month high was the data that showed European inflation is cooling quicker than the markets had expected and China's economic recovery is not looking promising. Reports say that China has slumped to its weakest levels since it ended its zero-covid policy last year. These global growth conditions are a clear supporter for the USD to remain positive. The 10-year US Treasury bond yields have dropped to their lowest since May 19 in the last two trading days, last seen at 3.65%. Job Openings and Labor Turnover Survey (JOLTS) data for April showed job openings rose to 10.1 million against the 9.37 million expected.

Key Movers

The euro fell by as much as 0.7% today after various sets of data showed a quick cooling of consumer price pressures in Europe’s two largest economies - France and Germany. The EUR/USD slid below 1.07 and is expected to remain under bearish pressure. Markets are anticipating the European Central Bank (ECB) to raise rates to a high of about 3.70% by the month of September, from the current 3.25%. Inflation in Germany, measured by the change in the Consumer Price Index (CPI), declined to 6.1% year-over-year in May from 7.2% in April. This reading came in below the market expectations of 6.5%. The annual Harmonized Index of Consumer Prices (HICP) rose 6.3% this month, compared to 7.6% in April and market estimates of 6.8%.

Sterling snapped its 3-day winning streak below 1.24 due to sinking UK business confidence, continuing inflation, and the Bank of England’s (BoE) ineffectiveness to curb rising prices. Earlier today, Lloyds Bank published the monthly releases of its business sentiment gauge and inflation signals for May. As per Reuters report, “The Lloyds Bank Business Barometer fell to 28% in May from 33% in April, its first decline since February, but in line with the survey's long-term average.”

Data out of China showed weak economic numbers which in turn boosted the USD. A survey released during the European trading session showed China's factory activity contracted faster than expected in May. The Chinese yuan plummeted to a six-month low at 7.133 against the USD.

Oil prices plummet as concerns grow over the ongoing US debt ceiling. In addition, unimpressive factory data and a decline in manufacturing growth from China further weighed on prices. West Texas Intermediate (WTI) oil was last seen trading at 68 and Brent crude oil was just under 73.

Expected Ranges

  • EUR/USD: 1.0663 - 1.0736 ▼
  • GBP/USD: 1.2354 - 1.2422 ▼
  • AUD/USD: 0.6470 - 0.6526 ▼
  • USD/CAD: 1.3589 - 1.3651 ▲