The US dollar is being propelled higher by the impasse in debt ceiling negotiations and soaring yields on short-dated US T bills.
The one-month T bill is offering a fresh multi-decade high yield of over 6% to maturity, while even shorter-dated T-bills maturing just after the potential default date of June 1st are seeing yields in excess of 7%.
These astounding yields are creating a short-term rate differential between other G7 currencies, which is widening and further strengthening the US dollar.
Interest rate hikes are being repriced, with market expectations of a 25bp rate hike at the June 14 meeting growing, and there is now a 33% chance of a rate hike in June according to CME Fed Fund probabilities.
The US bond market is seeing the rate-sensitive UST 2-year offered with a higher yield of 4.42%, and the first Fed rate cut is only being priced in for the December meeting.
The latest US Core PCE report, along with Durable Goods Orders for April, and Michigan Consumer Sentiment data are all expected to fuel market volatility as the long weekend nears.
While the US dollar is close to a zone of prior support and resistance, it may now retrace slightly as the greenback is in overbought territory and volatility remains low.
The 200-day SMA is also just above the zone, which may further hold back the US dollar.
Are you bullish or bearish on the US dollar?
Keep an eye on the ongoing debt ceiling negotiations and market-moving economic events.
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