Forex Top Team

Despite the U.S. Debt Ceiling Issue, Markets Move on Policy Rate Observations


The market is in an unstable situation. With the approaching X-day of the US debt ceiling on June 1st, market participants are closely watching the negotiations between the US government and the Republican Party. However, the market is reacting sensitively to inflation and policy rate trends in various countries while temporarily setting aside the debt ceiling issue.

During the Tokyo session, the Reserve Bank of New Zealand raised its policy rate by 25 basis points to 5.50%. However, they also indicated a pause in further rate hikes. As a result, the New Zealand dollar has shown a sharp decline. The recently released UK Consumer Price Index for April decreased to a year-on-year rate of +8.7% from the previous 10.1%, but it significantly exceeded the market expectation of 8.2%. The market is strengthening its buying of the pound. Bank of England Governor Bailey was recently questioned by members of parliament about inflation during his testimony, specifically addressing higher-than-expected food price inflation.

In the upcoming overseas market, the minutes of the May 2-3 FOMC meeting will be released. The previous minutes mentioned discussions about halting further rate hikes at the June FOMC meeting by removing language regarding additional rate hikes. However, this week, several hawkish members have been advocating for additional rate hikes to curb inflation, which has tilted market sentiment towards a stronger dollar. The key point of these minutes will be the convincing rationale behind the decision to pause rate hikes.

Today, after the release of the UK CPI, the GBP initially made significant gains but later lost momentum and is currently leaning towards selling. As a result, GBP/JPY long positions have already been stopped out.

Today, there is a nervous sentiment ahead of the release of the FOMC minutes. The USD is expected to be prone to range-bound movements.

More Insights