5 Key Factors Influencing US Dollar Trading This Week

Key Points:

• Bipartisan agreement on US debt ceiling could shift market sentiment.
• Fed’s favored inflation measure signals potential rate hike in June.
• Reduced liquidity on Monday due to holidays, with volatility expected mid-week.
• US payrolls report on June 2nd could solidify Fed’s hawkish stance.

The US dollar faces a week packed with pivotal events that are likely to shape its performance. Here are the five key factors to watch:

1. Debt Ceiling Agreement: President Joe Biden announced a bipartisan agreement to raise the US debt ceiling, currently set at $31.4 trillion, to avoid a default. This deal, once passed by Congress, may lead to Fitch removing the “negative watch” rating on the US. The agreement could diminish the US dollar’s safe-haven appeal, boosting global risk appetite.
2. Fed’s Inflation Measure: The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, rose by 4.4% in April, up from 4.2% in March. This increase has heightened the likelihood of a 25-basis-point rate hike by the Fed in June, adding pressure to the US dollar.
3. Reduced Market Liquidity: With the Memorial Day holiday in the US, along with bank holidays in Europe and the UK, Monday is expected to see lower market liquidity. Additionally, as institutions prepare for month-end trading on Wednesday, volatility could increase mid-week.
4. US Payrolls Report: The US payrolls report for May, set to be released on June 2nd, is another critical event. Recent reports have consistently exceeded expectations, and this week’s figures are expected to show an addition of 180,000 jobs, with a slight rise in the unemployment rate to 3.5%. Strong wage data and a tight labor market could reinforce the Fed’s hawkish stance.

These fundamental drivers will be crucial in determining the US dollar’s trajectory throughout the week, with potential shifts in market sentiment and volatility expected.