Financial markets today

The financial markets approach Thursday’s trading session cautiously, as concerns over the US debt ceiling negotiations continue to highlight fears of a potential default. Despite a solid surge in Wall Street indices, Asian stocks experienced limited gains.

Risk sentiment improved on Wednesday, tempering the upbeat momentum of the US Dollar, as President Biden expressed confidence in avoiding a US default. Furthermore, the overall market mood was lifted by a rally in regional bank stocks. Notably, Western Alliance Bancorp led the rally after reporting a deposit growth of over $2 billion in the quarter ended May 12.

As of the time of writing, the US S&P 500 futures indicate a 0.11% decline for the day, signaling a sense of caution among investors as they evaluate the latest developments surrounding the US debt ceiling issue.

Referring to a draft letter addressed to President Biden, CNBC News reported early Thursday: “We write to urgently request that you prepare to exercise your authority under the 14th Amendment of the Constitution, which clearly states: ‘the validity of the public debt of the United States…shall not be questioned.’

Using this authority would allow the United States to continue to pay its bills on-time, without delay, preventing a global economic catastrophe.”

Meanwhile, the US Dollar Index struggles to sustain its recovery momentum following a late pullback on Wednesday. The decline in US Treasury bond yields appears to be limiting the upside potential for the US Dollar, at least for now.

Looking ahead to a relatively quiet European economic calendar, choppy trading is expected across G10 currencies, with market sentiment serving as the primary driver.

Later in the American trading session, attention will shift towards several mid-tier US economic data releases, including weekly Jobless Claims, the Philly Fed Manufacturing Index, and Existing Home Sales data.

Furthermore, speeches from officials of the European Central Bank (ECB) and the Federal Reserve (Fed) will provide additional entertainment for traders in the upcoming sessions.

EUR/USD remains on the defensive below 1.0850, with the US Dollar holding onto its previous gains. Financial markets in Germany, Switzerland, and France are closed in observance of Ascension Day, leading to limited liquidity and causing the pair to trade within a familiar range.

GBP/USD is maintaining its losses after facing rejection just below the 1.2500 level. The pair remains under pressure during the European morning ahead of Bank of England (BoE) Governor Andrew Bailey’s testimony on Quantitative Tightening before the UK Parliament’s Treasury Select Committee (TSC) at 09:15 GMT. Additionally, BoE policymakers Dave Ramsden and Ben Broadbent will also testify.

USD/JPY is consolidating losses near 137.50, having retreated from daily highs of 137.75 to 137.29, following the weakness in US Treasury bond yields. Despite mixed Japanese trade data, which fell short of market expectations in terms of exports and imports, the pair remains in the red.

AUD/USD witnessed significant movement in Asia, initially rebounding towards 0.6700 before sharply reversing to around 0.6630 due to disappointing Australian employment data. The latest figures from the Australian Bureau of Statistics (ABS) reveal that net employment fell by 4,300 in April compared to a revised rebound of 61,100 in March.

Additionally, the Unemployment Rate unexpectedly rose to 3.7% during the same period. Currently, the pair is trading at approximately 0.6650, digesting positive comments from China’s Ambassador to Australia.

NZD/USD is recovering above 0.6250 as New Zealand’s yields spike following the NZ Treasury’s release of a budget that indicates no recession.


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