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May 22 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Dips As Firm Fed Rhetoric Bolsters Dollar

By Paul Spirgel  —  May 22 - 02:50 PM

The USD index rose off early NorAm lows on Monday, heading toward a 0.22% gain at 103.27 after hawkish comments from Minneapolis Fed President Neel Kashkari and non-voting St.
Louis Fed President James Bullard.

Kashkari said rates may need to go north of 6% while Bullard saw the potential for perhaps 50bp more in hikes in 2023.

Tempering the dollar’s rise, San Francisco Fed President Mary Daly took a more cautious approach, awaiting more data and noting that tighter credit conditions may be akin to one to two rate hikes.

Atlanta Fed President Raphael Bostic said that he was comfortable waiting a little bit to see how the economy plays out in light of the historic tightening delivered so far.

Traders also remain cautious as debt ceiling negotiators prepare to meet to hammer out a deal to stave off U.S. default before the June 1 deadline.
President Joe Biden and Republican House Speaker Kevin McCarthy are slated to meet at 5:30PM EDT.

EUR/USD dipped slightly from its U.S. open of 1.0822 to 1.0810 after the slightly more hawkish lean by Fed members.
Front-end futures rates have moved slightly higher, with December 2023 rate cut expectations moving from -43bp on Friday to -38bp into Monday’s close.

USD/JPY rose 0.41% to 138.50, the tighter Fed rate expectations having a profound effect on U.S.-JP yield expectations as the BoJ is expected to remain accommodative.

GBP/USD fell from early NorAm highs by 1.2471 and was down 0.15% at 1.2425 in late trade.
The hawkish Fed rate expectations sapped the pound of early strength as traders adjusted positions ahead of Tuesday’s PMI data and Wednesday's UK price data.
A close below the 10-WMA at 1.2435 would open the way for tests of the May 18-19 double bottom by 1.2390, then 1.2345, the 38.2% Fib of 1.1805-1.2679.

Bitcoin was trading at $26.8k, up 0.3%, after a muted $27.1k-$26.5k range.
Lower rates into year-end have stalled selling as well as a dip in the amount of BTC registered on exchanges limiting supply.
Gold fell 0.12% and silver dipped 0.71% as higher U.S. yields weighed on precious metals.

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Refinitiv IFR Research/Market Commentary


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