The dollar is breaking higher today after recent consolidation of last week’s gains and its advance from a base built up over the last few weeks.
After threatening to make fresh cycle lows several times, the DXY broke to the upside last Thursday and Friday in a potentially significant push north , with prices now trading above its 100-day simple moving average.
This move was also coupled with “de-dollarisation” chatter that can always act as a good contrarian indicator. The dying days of the dollar have been proclaimed so many times over the years, but the clear lack of an alternative, if nothing else, has always negated this discussion.
In the near-term, markets are being harassed by the debt ceiling impasse which is threatening, as is often the case, to go to the wire in terms of catastrophe and market implications.
US Treasury Secretary Yellen recently alerted us to the dire consequences of the world’s biggest economy not paying its bills. But brinkmanship played by both Democrats and Republicans means the tensions will ratchet higher before a breakthrough deal is agreed.
This lends itself to haven currencies doing well like the dollar.
GBP eyes slowing jobs data
We got to see another part of the puzzle which the Bank of England have to piece together to decide whether it hikes one more time in June. After the previous month’s unexpected surge in pay, the growth rate eased, even though it remains relatively too high. The levels were lower than what we had seen through most of last year, which backs up the Bank’s surveys which indicate the peak in wage growth is in. Heat coming out of the job market could also be seen in the unemployment rate which edged up to 3.9% while the first monthly fall in employment since early 2021 was evident.
There are still two more CPI reports and one more job bulletin before the MPC sit down next month.
GBP/USD appears headed for 1.240 after falling sharply at the end of last week from one-year highs at 1.2679.
If dollar buyers ramp up as much as GBP traders hit the sell button, next support sits around that psychologically-important 1.2400 mark, also where its 50-day simple moving average (SMA) resides. Stronger support may yet be found at 1.2372/78 which is the early April lows.
The calendar is fairly light Stateside with Monday’s ISM services PMI the only real top-tier data, offering little scheduled “spark” on the USD side of the equation this week.
5 June 09:59
China’s weaker-than-expected non-manufacturing PMI, released just hours ago, have sparked a flight to safety.
31 May 12:17
Although the US dollar index is now easing away from overbought conditions, it’s still trading around a two-month high.
29 May 10:15
The drama of the fiscal situation in the world’s biggest economy continues to be front and centre in the minds of investors.
24 May 08:30
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