Mood remains mixed despite US debt ceiling optimism

Choppy action continues in the financial markets mid-week despite renewed optimism about a debt limit deal in the US. The US Dollar Index holds comfortably above 102.50 while the 10-year US Treasury bond yield fluctuates above 3.5%. Eurostat will release revisions to April inflation data. Later in the day, April Housing Starts and Building Permits will be featured in the UE economic docket.

Reuters reported late Tuesday that the meeting between US President Joe Biden, top congressional Republican Kevin McCarthy and other congressional leaders on debt ceiling ended on an upbeat note. Coming out of the meeting, McCarthy told reporters that it was possible to get a deal by the end of the week. Early Wednesday, US stock index futures trade mixed, reflecting the cautious market stance. Meanwhile, the US Census Bureau reported that Retail Sales in the United States rose 0.4% in April to $686.1 billion. This reading followed the 0.7% (revised from -0.6%) decrease recorded in March and came in below the market expectation for an increase of 0.7%.

EUR/USD rose above 1.0900 on Tuesday but failed to gather further recovery momentum. The pair trades in a very narrow channel slightly above 1.0850 early Wednesday. Market participants will pay close attention to comments from European Central Bank (ECB) officials, who have been delivering mixed remarks regarding the policy outlook since the beginning of the week.

GBP/USD closed in negative territory below 1.2500 on Tuesday. The pair stays on the back foot in the European morning and continues to push lower toward 1.2450. Bank of England (BoE) Governor Andrew Bailey will deliver a speech at British Chambers of Commerce Global Annual Conference at 0950 GMT.

The data from Japan showed earlier in the day that the Gross Domestic Product expanded at an annualized rate of 1.6% in the first quarter. This reading followed the 0.1% growth recorded in the previous quarter and came in much higher than the market expectation of 0.7%. USD/JPY gathered bullish momentum during the Asian trading hours and was last seen trading at its highest level in two weeks near 136.80.

USD/CAD fell toward 1.3400 after Statistics Canada reported on Tuesday that the annual Consumer Price Index rose 4.4% in April, compared to the market expectation of 4.1%. With retreating crude oil prices weighing on the commodity-sensitive Canadian Dollar, however, the pair regained its traction and climbed above 1.3500 early Wednesday.

Gold price broke below $2,000 and touched its weakest level since early May at $1,985 late Tuesday, pressured by rising US Treasury bond yields. XAU/USD stays relatively quiet at around $1,990 on Wednesday.

Following Monday’s modest rebound, Bitcoin failed to make a decisive move in either direction on Tuesday. BTC/USD fluctuates in a tight channel near $27,000 in the European morning. Ethereum managed to register small gains for the third straight day on Tuesday. ETH/USD seems to have stabilized slightly above $1,800 mid-week.