5 Key Factors Shaping US Dollar Trading This Week

TVC:DXY   U.S. Dollar Index
5 Key Factors Shaping US Dollar Trading This Week

The US dollar is in the midst of a week filled with pivotal events. Together, these fundamental drivers hold the key to understanding the potential shifts in the US dollar's performance throughout the week:

- US President Joe Biden announced that a bipartisan agreement has been reached to raise the US debt ceiling of $31.4 trillion, aiming to avoid a default. He has now called on Congress to pass the deal asap. Fitch ratings will remove the “negative watch” rating on the United States when the deal passes or looks likely to pass congress.

- The debt ceiling agreement has potentially weakened the safe-haven appeal of the US dollar, leading to an increase in risk appetite in global markets.

- The Personal Consumption Expenditures price index, the Federal Reserve's favored inflation measure, rose by 4.4% in April compared to the previous year, up from the 4.2% increase observed in March. This development has raised the probability of a 25-basis-point interest rate hike by the Federal Reserve in June.

- Due to the Memorial Day weekend in the US, as well as bank holidays in Europe and the UK, Monday will experience reduced market liquidity. Additionally, institutions are preparing for month-end trading on Wednesday, which could introduce more volatility.

- The US payrolls report for May will be released on June 2nd. Recent months have consistently shown better-than-expected job figures. It is anticipated that this week's job numbers will indicate an addition of 180,000 jobs, with a slight increase in the unemployment rate to 3.5%. A tighter job market will reinforce the Federal Reserve's hawkish stance, with strong wage data also providing support if the actual figures surpass estimates.

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