Opportunity for a weaker Dollar
The passing of month-end allows markets an opportunity to reassess currency valuations. Despite a cooling off within the Dollar as forecasted following the agreement between the White House and Kevin McCarthy, month end flows yesterday showed favourable conditions for a short-term Dollar resurgence. The beginning of June coincided with headlines last night that the House of Representatives passed the debt ceiling agreement. Now passing to the Senate for approval, the deal looks certain to pass but it remains uncertain whether this will be done in time to avoid severe fiscal consequences.
Yesterday also delivered the markets headlines regarding the intended path of the Federal Reserve this month. Philip Jefferson, member of the Board of Governors, shared similar comments to the Philadelphia Fed President of an expected pause in the hiking cycle in June. Whilst the market was already pricing a slowdown in hiking, this confirmation continues to provide the monetary environment required to allow the Dollar to weaken. Both Fed officials did of course note the ability of the central bank to raise rates further should inflation persist.
There are risks to this view of a weaker Dollar, however, balancing those risks does indicate a weaker USD is likely. A risk to this view includes significant data publications that are due from the US in the trading days ahead. This data will qualify and test the Fed’s conviction for a June pause and could undermine the current view of policy makers. Similarly, whilst the debt ceiling package looks sure to pass through the Senate, the time scale over which they will be able to do so is in question. A partial government shutdown to avoid default is therefore not entirely off of the table yet. Overall, these elements appear as peripheral risks to an otherwise convincing argument for the expectation of a weaker US Dollar as we move into June.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Morning Brief – Texas, USA
Humphrey Percy
Fri 19 Apr 2024
Texas, USA The third largest citrus state in the USA after California and Florida is Texas. Currently the citrus crop is under threat in Texas due to chronic water shortages owing to a long running dispute with Mexico over delivery under a 1944 treaty whereby Mexico is supposed to deliver “1.75 million acre feet of […]
Morning Brief – Parity
Charles Porter
Thu 18 Apr 2024
Parity As we brought to you earlier this week, there is an increasing chatter in the market about whether EURUSD has the momentum to challenge parity once again. At face value, of course, this would create a meaningful value change in the world’s foremost currency pair which has already seen a significant exodus of value […]
Morning Brief – US Dollar
Humphrey Percy
Wed 17 Apr 2024
US Dollar Surging on a strong US economy together with further geopolitical tensions in the past week, USD is at its strongest versus EUR this year and came within a whisker of breaking through 1.06 in yesterday’s trading. Against the Japanese Yen USD was 154.55 which caused Japanese Finance Minister Shunichi Suzuki to break cover […]
