FX Update: Greenback shrugs off debt ceiling deal FX Update: Greenback shrugs off debt ceiling deal FX Update: Greenback shrugs off debt ceiling deal

FX Update: Greenback shrugs off debt ceiling deal

John Hardy

Head of FX Strategy

Summary:  The US dollar peaked out and then rolled over this morning, generally failing to show a discernible reactivity to the US debt ceiling deal announcement as recent strength may have been on front-running the actual news. US treasury yields have eased back lower since Friday, USDJPY is showing signs of wanting to consolidate recent gains. Elsewhere, the SEK and NOK are eyeing fresh cycle lows on Sweden’s rate sensitivity and tumbling gas prices, respectively.

Today's Saxo Market Call podcast

FX Trading focus:

  • USD not getting anything from debt ceiling deal announcement, but it’s a medium term factor regardless.
  • USDJPY ready to consolidate as long US yields ease back lower. Recession status in focus in US data confidence, yield curve signals
  • Fresh SEK and NOK focus after more weakness. Key Norges Bank FX purchase announcement up tomorrow.

Trading and bias notes:

  • USD: May need to consolidate gains here – momentum very weak, especially given debt ceiling deal announcement, but on watch for renewed strength further out if consolidation proves half-hearted.
  • GBPUSD: has lost downside momentum, standing aside.
  • JPY: room for a rally as long yields have backed off. USDJPY could eye 138.00 and EURJPY perhaps 148.50, but bigger reversal likely needs recession concern rising and bigger punch lower in yields.
  • SEK: verbal intervention from Riksbank failed to hold for even a single session. New low for the krona to be tested until a more robust official response?

USD: debt ceiling deal not serving as a catalyst.
The deal-in-principle between Republican House speaker McCarthy and the Biden White House will hopefully punt the debt ceiling issue to the other side of the November 2024 US election. We will still need to see the deal fully passed by both houses and by President Biden in coming days, but the market looks set to put this issue behind it for now. There hasn’t been much in the way of a reaction function, with US yields easing back a bit lower at the long end of the yield curve. (Are we supposed to believe because it a) makes investors feel safer to buy longer term US debt or is it b) a function of the market pricing the Fed to prove less dovish now that it won’t have to worry about the impact of a prolonged stand-off on government spending and thus likely more successful in bringing about a recession that is probably needed to slow inflation more significantly?)

Before drawing too many conclusions, it’s important to note that the impact will have to be measured in coming weeks and months rather than days, as the implications play out in the shape of the US treasury rebuilding its reserves to the tune of some half a trillion USD or more in net issuance. That’s a lot of liquidity absorption at a time when the Fed is also doing QT. Back at the end of 2021, the Treasury’s reserves were similarly depleted in mid-December and were rebuilt to over 700 billion by early February, but banks were awash in reserves at that time and Fed QT had not yet started. Nonetheless, that period in early 2022 saw the first real break in the equity market since the pandemic lows. There seems little fear afoot in risk sentiment this time around, but as we discussed in this morning’s Saxo Market Call podcast, market internals are not pretty, with the gains in the big indices in recent days almost entirely due to enormous impact on select stocks linked to AI. As well, it is worth once again noting that the US Treasury’s drawdown of its reserves has more than offset overall Fed QT this year.

US yield curve inversion, consumer confidence in focus as recession indicators
The US yield curve has been inverting again as the market prices the Fed to stay higher for longer and possibly even hike once more in June or July (almost a full 25 basis-point rate hike priced through the July FOMC meeting and the December FOMC pricing has bobbed back to 5.00. The yield curve has inverted back toward -80 basis points for the 2-10 slope, needing weak data now to stop . A brief reminder that yield curve inversions are a profound indicator for recession risks, if a very imprecise one. Back before the financial crisis, the yield curve inverted as early as early 2006, almost two full years before the economy entered a recession in late 2007. This time around, the yield curve begain its sustained inversion in July of last year. We noted in today’s podcast that the last two cycles of 2000-1 and 2007-08 have seen the yield curve steepening proceed other indicators like the Present Situation component of the US Consumer Confidence beginning to deteriorate relative to Expectations (which are already in the gutter). Today sees the May release of that US confidence survey.

Watching USDJPY here after the run above 140.00 that has coincided with the recovery in US treasury yields, in part on the anticipation of the debt ceiling lifting. US yields peaked Friday and have come back lower, offering the JPY some support. Today, USDJPY has been choppy on Japan’s finance minister Kanda out with verbal intervention (oddly producing a brief USDJPY rally before it settled back lower). USDJPY will stay very sensitive to developments in US yields, but if the long end of the US treasury yield curve stays capped, pressure may be on the pair to fall back toward the 200-day moving average or at least to the 138.00 area that was broken on the way up.


Source: Saxo Group

More scandie woes as EURNOK and EURSEK eye highs again
The remarkable Eurozone natural gas situation (discussed in this morning’s podcast) that could see natural gas prices dropping almost to zero or even below ahead of the heating season has EURNOK testing the highs for the cycle as the Norges Bank FX purchases were excessive relative to incoming tax revenue from the oil and gas producers over the last month. Tomorrow sees the Norges Bank announcing its intended daily purchases/sales for June. Given developments in gas and NOK, these should be set to zero from their May pace of NOK 1.4B/day! Watch for NOK reactivity around this data release tomorrow at 0800 GMT.

Elsewhere, the Swedish krona got almost nothing out of the Riksbank’s first real verbal attempt to check the market last week with verbal intervention on the currency last week. Credit to the economy continues to crater, with yesterday’s April Household Lending survey dropping to 1.9% year-on-year, the lowest since the mid-1990’s. Somehow Sweden reported a slightly firmer GDP than expected in Q1, but the credit and other recent numbers suggest the economy is likely at stall speed or worse, as Sweden remains supremely vulnerable to the impact from rising yields on private disposable income. EURSEK just popped to a new high since the financial crisis above 11.62 as I am writing this.

Table: FX Board of G10 and CNH trend evolution and strength.
USD playing a “sell the fact” pattern on the debt ceiling deal here the first day after the long weekend? Hard to know, but it will take some doing to reverse the USD uptrend. Elsewhere, note the extreme woes in the Scandies and the sterling finally pulling stronger after a very misleading reaction to the inflation data last week that prompted our concern.

Source: Bloomberg and Saxo Group

Table: FX Board Trend Scoreboard for individual pairs.
USD pairs are all in bull mode – with GBPUSD and USDCAD with the least positive signals. Elsewhere, watching JPY crosses broadly for whether the yen can put up a fight here.

Source: Bloomberg and Saxo Group

Upcoming Economic Calendar Highlights (All times GMT)

  • 1300 – US Mar. S&P CoreLogic Home Prices
  • 1400 – US May Consumer Confidence
  • 1430 – US May Dallas Fed Manufacturing Activity
  • 2300 – Australia RBA Governor Lowe to testify
  • 2350 – Japan Apr. Industrial Production
  • 0100 – New Zealand May ANZ Business Confidence
  • 0130 – China May Manufacturing and Non-manufacturing PMI
  • 0130 – Australia Apr. CPI


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.