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Dollar Rallies Capped as Jefferson Weighs on Hike Chances

FOREX
  • The greenback is broadly inline with yesterday's close, with the USD Index holding within range of yesterday's cycle high at 104.70. The bipartisan debt ceiling deal cleared the House late yesterday, leaving the Senate as the final step for Biden and McCarthy's deal.
  • Having pulled lower on Fed's Jefferson talking up the possibility of a rate pause yesterday, rallies have been short-lived, potentially keeping a short-term lid on prices.
  • Eurozone inflation for May came in below expectations for the flash estimate, but the drifting consensus after soft French and German prints yesterday has allowed EUR/USD to bounce off overnight lows and allow for EUR/GBP to trade higher for the first session in five.
  • A firmer equity backdrop (e-mini S&P +0.2%, EuroStoxx50 futures +1.2%) has aided a pullback in the JPY - leaving USD/JPY just below the Y140 handle and levels that preceded the unscheduled tripartite meeting earlier this week. Markets remain on watch for any further comments from Kanda or the BoJ.
  • Focus shifts to a deluge of US data - as markets look to gauge the condition of the jobs market ahead of NFP Friday. ADP Employment Change, weekly jobless claims and the May Manufacturing ISM are all due - with focus on the latter after Wednesday's poor MNI Chicago PMI release. Central bank speak includes ECB's Lagarde, Villeroy and Fed's Harker.

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