US dollar rallies as political news impacts key rival

The US Dollar Index is trading at 105.342 at the time of writing. So far on Tuesday, the dollar has consolidated Monday’s gains on the back of negative political news from Europe, with the dollar jumping after rumors saying that President of France Emanuel Macron is considering resignation.

The US Dollar index trades above 105.00 and flirts with nearby support levels. On Tuesday, the headline that Macron was not considering resigning, which markets interpret as he actually was considering resigning, added to more weakness in the Euro and US Dollar strength.

On the economic front, the US Dollar index (DXY) moves alongside political news out of Europe ahead of Wednesday’s main events: the US Consumer Price Index for May and the Federal Reserve (Fed) interest rate decision. Before that, two very light data elements will find their way to the markets on Tuesday: the NFIB Business Optimism Index for May and the Redbook Index for the first week of June.

Headline hitting the wires on Tuesday comes from France, where Marine Le Pen, head of the far-right movement in France, said she will not be running in the upcoming snap elections at the end of June.

This can be considered a victory for current French President Emmanuel Macron as his government sees its odds of surviving these snap elections rising with Le Pen now backing down. A strange headline emerged around 10:00 GMT from a person close to French President Macron, commenting that the President did not consider to resign after the election results, triggered another leg lower in the Euro against its peers and resulted in an uptick for the US Dollar.

The Eurozone is cracking under pressure as well, with a broad bond sell off in the region. The spread between Italian and German bonds is rising, with Italian yields rising quicker than German ones. Broading or widening yield spreads in the eurozone are often seen as stress and a negative sign in global markets.

The CME FedWatch Tool shows a 45.6% chance of the Federal Reserve (Fed) interest rate at the current level in September. Odds for a 25 basic points rate cut stand at 50%, while a very slim 4.4% chance is priced in a 50 basic points rate cut. The benchmark 10-year US Treasury Note slides to the lowest level for this week, near 4.45%, and flirts with further declines.