BoE Bailey more optimistic.

US housing starts increased slightly to an annual rate of 1.4mn for April from 1.37mn the previous month and in line with consensus forecasts while building permits edged lower to an annual rate of 1.42mn from a revised 1.44mn previously and slightly below market expectations.

House Speaker McCarthy stated that he would spend all his effort to resolve the debt-ceiling issue and that there is the opportunity to find common ground, but only a few days to get the job done. He added that there would not be a debt default.

President Biden stated that he is confident that an agreement on the debt limited will be reached.

The dollar gained fresh support with net demand amid reservations surrounding the outlook for the Chinese and Euro-Zone economies. The US currency was resilient despite some hopes that there would be agreement on the debt ceiling.

Bank of England Governor Bailey stated that the economic outlook is much brighter than it was a few months ago with the bank now forecasting modest growth rather than a shallow and long recession. Bailey noted that inflation has been higher than expected, but will decline sharply over the next few months.

He reiterated that inflation risks are skewed to the upside and the bank’s commitment to the 2% target is unwavering. He added that there was evidence of the labour market softening, but at a slower pace than expected in February.

The Australian labour markets data was weaker than expected with a 4,300 decline in employment compared with expectations of an increase close to 25,000. The unemployment rate also increased to 3.7% from 3.5% and above expectations of 3.5%.

The latest US jobless claims will be released on Thursday with expectations of a decline to around 255,000 on the week. The Philly Fed index will also be potentially important after the very weak New York survey earlier in the week.

The Euro remained on the defensive during Wednesday as markets fretted over the Euro-Zone growth outlook.

Higher bond yields continued to underpin the dollar.  The dollar index hit 7-week highs. EUR/USD dipped to 6-week lows at 1.0810. Hopes for a resolution to the debt-ceiling impasse triggered a limited recovery to 1.0840.

The yen was undermined by higher US yields. USD/JPY hit 2-week highs at 137.75 with only a marginal correction.

The Swiss franc was unable to make further headway.  EUR/CHF settled around 0.9740 with USD/CHF gains to 0.9025 before a retreat back below 0.9000.

Sterling found solid support on dips with no overtly dovish rhetoric from BoE’s Bailey. GBP/USD rallied to 1.2500 from 3-week lows close to 1.2420 before settling around 1.2470.

Commodity currencies rallied from lows as equities recovered. AUD/USD settled at 0.6670 from 0.6630 lows. Weaker than expected jobs data triggered a fresh retreat to below 0.6650. USD/CAD hit 1.3535 before a sharp retreat to 1.3440 as oil prices rallied and consolidated around 1.3470.

Economic Calendar