Spreadex Market Update
USD Rallies on Hawkish Fed Expectations – Powell On Watch Today
The US Dollar rose to 6-month highs yesterday as increasing optimism over the prospect of a debt ceiling deal has translated into hawkish Fed expectations. McCarthy told press that he believes an “agreement in principle” might come as early as this weekend with him and Schumer making plans for votes in coming days. This expectation has translated into support for USD with traders sensing a more hawkish response from the Fed in June consequently. This view was bolstered yesterday by a weaker than expected US jobless numbers reflecting the remaining tightness in the labour market.
Key Factors for Today
- Markets buoyed by debt ceiling optimism
- USD higher on hawkish Fed comments
- Metals under pressure
- Risk currencies rising alongside USD
Market Movers
- S&P hits new highs for the year
- DAX breaks out
- DXY hits 6-month highs
- Gold & silver bouncing after hitting fresh lows yesterday
Econ Calendar
- ECB Economic Bulletin (9am)
- CAD Retail Sales (1.30pm)
- Fed’s Powell Speaks (4pm)
Stocks & USD Both Rallying… For Now
It’s an interesting time for markets with both USD and stocks rallying simultaneously at the moment. The S&P was seen breaking out to fresh highs for the year at the open today, echoing the moves we’ve seen in the Nasdaq. For now, traders are focusing on the relief of a likely debt-ceiling deal being done over the prospect of further Fed tightening. Tech stocks have been among the biggest beneficiaries, driven by the flood of investment pouring into AI stocks recently. With most major indices at fresh highs for the year, the near-term outlook looks skewed towards further upside unless we see a major disappointment in debt ceiling negotiations.
XAUUSD broke down below the 1970 level support yesterday as selling intensified against a backdrop of higher equities prices and a stronger USD. Silver prices too were seen extending losses before stabilising. Both metals are seeing better demand across the European open on Friday. However, with USD poised for further gains near-term we might well see further downside into next week for gold and silver.
Crude prices continue to hold within Wednesday’s range for now. The upside move, which came alongside an uptick in risk assets mid-week, failed to deliver any follow-through however. A stronger USD is curtailing the upside for now. The latest weekly report from the EIA has also stalled upside momentum for crude with a large 5 million barrel surplus reported.
In FX, we’re seeing the recent trend of higher USD and higher risk-FX continuing. CAD, NZD and AUD have been well supported amidst the recent strength in equities and commodities prices, despite the uptick in USD. JPY remains under pressure into the end of the week with safe-haven flows continuing to diminish. Data wise, focus today will be on Fed chair Powell who speaks later and might fuel fresh USD volatility ahead of the weekend.
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