Currency traders remained cautious ahead of a new episode in the debt ceiling discussions in the US. Hopes of a swift agreement between the President and Congress remain while concerns about the impact that a late agreement could fuel volatility.
Traders are increasingly concerned about the risks involved as the nominal deadline of June 1st approaches. The deadlock in discussions has prompted investors to move away from riskier assets and toward the US dollar helping stabilize the currency and push it up out of a downward trend.
Otherwise, economic data continued to drive the market with Eurozone GDP growth figures supporting the euro against the dollar. Economic growth was in line with estimates while European institutions revised their forecasts to the upside in terms of growth for this year and the next while the economy was more resilient than previously anticipated.
Healthier European economies and stickier inflation could continue to support the direction taken by the European Central Bank in terms of monetary policy. As a result, we could continue to see the differential in interest rates diminish against the US dollar and help push the euro back into its uptrend despite a pessimistic economic sentiment in Germany.
Tomorrow’s CPI data could also help traders get a better view of the direction the ECB might adopt and could confirm expectations of more resilient inflation in the area.
The British pound reacted to the publication of a series of economic data on the local job market which could start deteriorating. The data created strong volatility and impacted the currency’s trend against the dollar and the euro. The pound could see more losses against its mainland counterpart if the Bank of England moves to a less restrictive monetary policy.
Asian currencies were seeing more mitigated performances. The Japanese yen was relatively stable today and could see some volatility as traders await the release of GDP growth figures. The Chinese yuan however was pulled down by the weaker-than-expected industrial production figures. The Chinese recovery continues to come short of estimates.