Weekly Roundup: US dollar rallies amid widespread risk aversion

Philip McHugh May 30th 2023 - < 1 minute read

While Monday’s trade was subdued, the US dollar then marched higher throughout the remainder of week, with the US dollar index hitting multi-month highs.

The upside came amid growing anxiety around the US debt ceiling crisis. Reports emerged that talks had stalled, with the deadline for a deal inching closer. This sparked widespread risk aversion, thereby boosting the safe-haven ‘greenback’.

USD faced a few bumps in the road, including a deepening contraction in factory activity and dovish Federal Reserve meeting minutes.

A recovery in the market mood on Friday then saw the US dollar trim its gains. However, a surprise uptick in the core PCE price index helped USD bounce back by reinforcing Fed hike bets.

This week, news that President Joe Biden and House Speaker Kevin McCarthy have agreed a deal to raise the debt limit is prompting a modest recovery in risk appetite. However, lawmakers could still block a deal so the upbeat tone is limited.

If progress continues to be made, a cheery market mood could drag on the safer US dollar.

In terms of economic reports, new US labour market data out this week may drive most movement, including the JOLTs job openings survey on Wednesday and non-farm payrolls on Friday. Signs of a tight labour market could boost Fed bets and therefore lift USD.

Written by
Philip McHugh

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