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The debt ceiling agreement reached by US President Biden and House Speaker Kevin McCarthy is encountering difficulties, which is negatively affecting market sentiment. US markets ended with mixed results, as Treasury yields dropped significantly.
Economic Data
Consumer sentiment in the US weakened slightly in May with the Conference Board’s Consumer Confidence Index edging lower to 102.3 from 103.7 in April (revised from 101.3). Further details of the publication revealed that the Present Situation Index declined to 148.6 from 151.8 and the Consumer Expectations Index stayed virtually unchanged at 71.5.
Key Developments
Lower rates had an uneven impact on the US dollar, while risk aversion had an impact on commodities and emerging market currencies. In May, consumer confidence in the US fell, but not as much as was predicted.
On Wednesday, the focus will be on raising the debt ceiling; if Congress succeeds, the spotlight will then shift to job statistics. On Wednesday, the Federal Reserve will release the Beige Book and many officials, including Harker and Bowman, have scheduled public appearances.
While the minor decline in consumer confidence in May may have been caused by short-term concerns over the debt ceiling, the more intriguing trends show how the ground is changing under consumers’ feet. As purchasing plans dwindle, concerns about the labour market are intensifying.
After making a new monthly low at 1.0670, the EUR/USD pair finished higher over 1.0700. Spain published inflation data that was lower than anticipated. On Wednesday, data on inflation will be released for Germany and France. Another drop in annual rates could temper expectations for a tightening by the European Central Bank.
GBP/USD increased from below 1.2350 to 1.2440 on speculation that the Bank of England (BoE) would continue to tighten its monetary policy. The EUR/GBP fell to 0.8628, its lowest point since the middle of December.
The announcement of an urgent meeting between the Ministry of Finance, the Bank of Japan, and the Financial Services Agency, along with a drop in government bond yields, helped the yen perform better. The USD/JPY pair lost ground and is now biased downward.
AUD/USD failed to break above 0.6550 and pulled back towards 0.6500. The Aussie remains under pressure ahead of a busy Asian session, with Reserve Bank of Australia (RBA) Governor Lowe appearing before a Senate Committee and monthly inflation data. Next week is the monetary policy meeting.
USD/CAD moved sideways around 1.3600, despite the decline in crude oil prices. The WTI barrel lost more than 4%, falling below $70.00. Canada will report March growth numbers.
USD/CHF hit two-month highs at 0.9082 and then pulled back modestly. Switzerland reported 0.6% Q1 growth, but the KOF Leading Indicators plummeted from 96.1 to 90.2 in May. Retail sales data is due on Wednesday.
It was a positive day for gold which finished higher after hitting fresh monthly lows. XAU/USD settled near $1,960, offering signs of stabilization. Silver retook $23.00. Cryptocurrencies rose, with BTC/USD gaining 0.45% to $27,800, and Ethereum gaining 0.60% to $1,905.
The Turkish Lira fell sharply again following the victory of Erdogan in the presidential runoff. USD/TRY climbed almost 2%, reaching a new record high at 20.40.
What to watch on Wednesday, May 31:
A busy calendar lies ahead, with a focus on Australia, with inflation data and RBA Governor Lowe’s testimony. Japan will report industrial production and retail trade data. Chinese PMIs and the New Zealand ANZ May Activity Outlook are also due. Later in Europe, attention will turn to French and German inflation data. The debt ceiling drama remains unresolved, and Wednesday is supposed to be the day of the Congressional vote.
Also Read:
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USD/JPY retreats on intervention talk, declining T-yields
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