The EUR/USD currency pair has continued its upward momentum, surpassing the immediate resistance level of 1.0780 during the early European session. This surge can be attributed to the US Dollar Index (DXY) hovering below 103.50, providing some support for the major currency pair.

After briefly dropping near 1.0760, the EUR/USD rebounded as the USD Index faced significant barriers in extending its recent rally beyond the previous week’s high of 103.62.

In early London trading, S&P 500 futures have maintained their gains from the Asian session, indicating a minor recovery in market participants’ risk appetite. However, US stock indices experienced a significant sell-off on Tuesday, primarily driven by investors reducing their positions in technology stocks.

Concerns have arisen due to the delayed response of US President Joe Biden regarding the nation’s debt-ceiling issues, raising fears of a potential default by the Federal government.

The US Dollar Index has exhibited signs of volatility contraction below 103.60, with investors eagerly awaiting the release of the Federal Open Market Committee (FOMC) minutes from May’s monetary policy meeting.

Deepening Concerns over Catastrophic US Default
Investors are growing increasingly worried about the possibility of the United States announcing a default on its obligations after June 1st. During a closed GOP meeting on Tuesday, US House Speaker Kevin McCarthy stated, “I need you all to hang with me on the debt limit, we are nowhere near a deal yet.”

This suggests that bipartisan expectations between Republicans and the White House are losing momentum.

The lack of fresh commentary from President Joe Biden regarding an agreement on raising the US borrowing cap has heightened anxiety among market participants. The US Treasury Secretary has repeatedly warned that the Federal government will run out of funds by June 1st, resulting in the loss of millions of domestic jobs, global financial market chaos, and a surge in interest rates.

Focus on FOMC Minutes
Investors are eagerly awaiting the release of the FOMC minutes, which are expected to shed light on the Federal Reserve’s decision to raise interest rates by 25 basis points (bps) during May’s monetary policy meeting. These minutes will provide insights into the current economic outlook and guidance on future interest rate adjustments.

However, Federal Reserve Chair Jerome Powell expressed a preference for a pause in rate hikes during a recent meeting, citing tight credit conditions imposed by US regional banks, which have restricted the flow of credit into the economy. Companies are facing working capital issues due to increased scrutiny by US banks, potentially forcing them to underutilize their productive capacity.

European Central Bank President’s Speech in Focus
The Euro witnessed significant activity on Tuesday following the release of mixed preliminary May PMI data. Manufacturing PMI contracted to 44.6, lower than the estimated 46.2 and the previous release of 45.8. A reading below 50.0 indicates a contraction in manufacturing activity.

Conversely, Services PMI rose to 55.9, slightly exceeding the consensus of 55.6 but remaining below the previous release of 56.2. Analysts at Commerzbank anticipate a slight decline in real GDP during the second half of the year.

On Wednesday, market participants will be closely monitoring the speech by European Central Bank (ECB) President Christine Lagarde. It is expected that Lagarde will provide insights into the ECB’s monetary policy for June, as she has already stated that multiple interest rate hikes are necessary to address persistent inflation in the Eurozone.


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