USD/CAD holds to decent intraday gains

Key Movers

The US dollar climbs to a new seven-week high with the dollar index (DXY) touching 103.38. Market confidence was further boosted by optimism surrounding a US debt ceiling agreement aimed at avoiding a potential default. Traders are currently factoring in a 20% probability of the Federal Reserve increasing interest rates in June. Roughly a month ago, the market had assigned a similar 20% probability of a rate cut. On Wednesday, President, Joe Biden, and leading Republican, Kevin McCarthy, emphasized their commitment to reaching a timely agreement to increase the government's debt ceiling, which currently stands at $31.4 trillion. They had previously agreed the day before to engage in direct negotiations, putting an end to a prolonged standoff that has lasted for months. Data released today revealed that the number of initial jobless claims in the US for last week was 242,000, lower than the anticipated figure of 254,000. Furthermore, another data point indicated a less severe decline than expected in the business index of the Philadelphia Federal Reserve, with the index dropping to -10.4 instead of the projected contraction of -19.8.

EUR/USD dropped below the 1.0800 mark as the pair comes under selling pressure. The prevailing risk-averse sentiment continues to persist due to ongoing concerns about the US debt ceiling. This is supporting the renewed upward bias in the USD. The euro is further influenced by the more moderate stance of the European Central Bank's (ECB) rate-setters. Vice President, Luis de Guindos Jurado, indicated that the bank had completed its tightening measures, suggesting the potential for additional rate hikes in the future. Conversely, his colleague, Alexander Müller, known for a more hawkish stance, dismissed the likelihood of early rate cuts next year. ECB President, Christine Lagarde, is scheduled to speak later today.

The pound retreated toward a three-week low of 1.2422 against the US dollar as investors-maintained caution due to the pound's recent rally coupled with the British economy experiencing stagnation and a softening labor market. Bank of England (BoE) officials gathered today at Westminster to testify before the Treasury Select Committee of the Parliament. During the session, Bank of England Deputy Governor, Dave Ramsden, expressed that it was more probable for the central bank to increase rather than decrease rates.