US dollar jumps on US debt ceiling optimism

Philip McHugh May 19th 2023 - 2 minute read

The US dollar strengthened on Thursday amid reports of positive progress being made in US debt ceiling talks.

Meanwhile, the pound is off to a slow start this morning, with GBP/EUR flat at €1.1515 and GBP/USD rangebound at $1.2423. GBP/CAD is muted at CA$1.6744, while GBP/AUD and GBP/NZD slide to AU$1.8677 and NZ$1.9840, respectively.

Looking ahead will a speech by the Federal Reserve Chair Jerome Powell help to extend the US dollar’s gains today?

What’s been happening?

The US dollar enjoyed strong support yesterday, with investors favouring the currency amid optimism over US debt ceiling talks.

Reports suggest the Democrats and Republicans are closing in on a deal, which will hopefully avoid a debt default from placing severe strain on the US economy.

Reinforcing the US dollar’s gains was the publication of the latest US initial jobless claims, which reported a larger-than-expected fall last week.

The euro’s negative correlation with the US dollar left the single currency muted on Thursday, despite comments from European Central Bank (ECB) Vice President Luis de Guindos suggesting ‘there is still scope to keep raising rates.’

At the same time, the pound was rangebound through yesterday’s session as Bank of England (BoE) Governor Andrew Bailey was grilled by Parliament’s Treasury Committee about the bank’s monetary policy.

What’s coming up?

All eyes will be on the Federal Reserve’s Jerome Powell today as he is scheduled to make a speech later this afternoon.

USD investors will be hoping that Powell could shed some more light on the Fed’s policy plans amid some conflicting signals from the bank in recent weeks.

If Powell indicates the Fed is still open to raising interest rates again this year, then the US dollar could extend its gains.

In the meantime, the publication of Germany’s latest producer price index looks to lend support to the euro this morning, after printing above expectations in April.

Finally, in the continued absence of any GBP data of note, the pound may be left to trade without any strong directional bias through the remainder of the week.

Written by
Philip McHugh

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