FX News

FX Update: US Debt Ceiling Reaches Deal

Market Overview

Key Points:

• US Debt ceiling negotiations have been reached. US House speaker McCarthy and President Biden have come to an agreement to raise the debt ceiling of 31.4Tn until January 2025 allowing the US government to not default on its debt obligations. It’s said that the capital raising exercise will trim 0.1% off next year’s GDP.
• Predictions are for the RBA to hold interest rates at the June 4th meeting while a hike at the 4 July meeting looks favourable.
• Federal Reserve rate forecasts for June look to be a close call. The Fed needs 3 items to consider hiking- strong economic data releases, debt ceiling increase (check) and a softening in the regional bank stress.
• ECB’s Makhlouf says upward pressures on inflation have slowed but food prices are still rising leading to his opinion that hikes are needed in June and July. He believes the Eurozone can achieve its inflation target without dropping into a recession.
• Chinese Industrials fell 18.2% y/y in April following a 19.2% dip in March.
• Geopolitical tensions between Japan and North Korea increase.
• The US Dollar (USD) has been the best performer in the month of May compared to the Japanese Yen (JPY) , the worst performer.

Major Announcements last week:
US new home sales 683k vs 665k forecast
RBNZ raise rates to 5.50%
UK CPI y/y 8.7% prior 10.1%
US prelim GDP 1st quarter 1.3% vs 1.1% predicted
UK Retail Sales April 0.5% up from 0.3% forecast

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