Debt Ceiling Resolution and USD Index Updates

By Samir El Khoury, ACICMP®

On Wednesday, the US House of Representatives decisively approved a bill to halt the country's debt limit until January 1, 2025, in an urgent effort to avert a potentially devastating default. This outcome had been anticipated and thus did not significantly rattle the markets.

Given the obvious contradiction in certain Federal Reserve members' statements, attention is now focused on the next measures the US Federal Reserve will take regarding its monetary policy, particularly with relation to interest rates. There is some unclarity in regards to the statements made by some members of the Federal Reserve. Loretta Mester, for example, indicated yesterday that there is no reason to prevent the US Federal Reserve from proceeding with the increase in interest rates in addition to the statements made by James Bullard and Neil Kashkari last week. On the other hand, the Federal Reserve may decide to cease raising interest rates at its upcoming meeting, Philip Jefferson suggested. He added that halting the rises this month does not necessarily mean hitting the peak of tightening, but that it will give the US central bank time to review the data. Patrick Harker also said that the Fed may decide to leave rates unchanged at its meeting in June.

The data in question is complex. The Fed's preferred inflation measure, the personal consumption expenditures price index, and a stronger-than-expected GDP, consumer confidence and JOLT Job openings are making it challenging for the Fed to determine the right interest rate. Despite these complexities, US economic data continues to demonstrate strength.

The forecasted hike of 25-basis point at the next Federal Reserve meeting on June 14 is now 35%, falling from 60%. It's crucial to keep a watch on upcoming events like the change in non farm private sector jobs issued by ADP, initial jobless claims and the Institute for Supply Management (ISM) Industrial Purchasing Managers' Index (PMI) today. In addition to NFP report, the Unemployment Rate and Average Hourly Wages, which are to be released tomorrow. 

The US dollar index, which tracks the dollar's performance against a basket of six major currencies, has risen above the pivot point of 104.00 today, and if the pivot point is broken, this index is likely to test the support levels of 103.87, 103.35, and 103.16. It may also test the resistance levels of 104.70, 105.15, and 105.35. 

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.

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