The US Dollar Index (DXY) is trading around the 104.25-30 level in early Monday trading, facing difficulties in finding support from investors despite the recent US debt ceiling agreement. The passage of the agreement through Congress remains uncertain, contributing to the cautious mood in the market.
Moreover, the presence of holidays in several markets adds to the challenges for DXY buyers. The focus now shifts to the upcoming US jobs report later this week.
Although US President Joe Biden and House Speaker Kevin McCarthy have reached a preliminary agreement to raise the Federal government’s debt ceiling of $31.4 trillion until January 2025, the deal lacks full support from some lawmakers on both sides due to the compromises involved.
To avoid the potential consequences of a “catastrophic” default, the debt ceiling deal needs to pass through the House on Wednesday and the Senate by June 5.
President Biden has strongly urged both chambers to pass the agreement. However, positive US economic data and expectations of a more hawkish Federal Reserve keep buyers of DXY hopeful.
Following Friday’s encouraging US data and positive growth figures from earlier in the week, market players are becoming increasingly optimistic about a 0.25% rate hike by the Federal Reserve in June.
US Durable Goods Orders for April exceeded expectations, showing a growth of 1.1% compared to the previous reading of 3.3%, surpassing the anticipated -1.0% decline.
Additionally, the Core Durable Goods Orders, which exclude defense and aircraft, showed a strong growth of 1.4%, beating the expected -0.2% and the previous -0.6%.
Furthermore, the Core PCE Price Index for April surpassed market forecasts and previous readings, rising to 0.4% month-on-month and 4.7% year-on-year, compared to the earlier 0.3% and 4.6% respectively.
Not only positive data but also comments from influential figures support the bullish sentiment towards the US Dollar. International Monetary Fund Managing Director Kristalina Georgieva stated that US interest rates will need to remain higher for a longer period.
Similarly, Federal Reserve Bank of Cleveland President Loretta Mester commented that the recently released Personal Consumption Expenditures (PCE) Price Index indicated slow progress in inflation.
Over the weekend, Federal Reserve Bank of Chicago President Austan Goolsbee welcomed the news of the US debt ceiling agreement but advised against making premature decisions weeks ahead of the meeting.
Against this backdrop, Wall Street closed on a positive note, and S&P500 Futures are showing slight gains, responding positively to the US debt ceiling deal. However, the bond market movements have been limited due to the holidays observed in major trading markets.
Looking ahead, with major trading frontiers closed on Monday, there may be a temporary pause for the DXY bulls. However, market participants will closely monitor this week’s US jobs report for May and the US Congress voting on the debt ceiling deal, as these factors will be crucial in providing clear directions for the market.
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