US Dollar Gains as Congress Reaches Budget, Spending Package Deal

Talking Points:

• US Dollar gains as Congress reaches budget, spending package deal
• Pound falls on prickly Brexit rhetoric, Yen down as risk appetite firms
• Markets may look past PCE and ISM figures as FOMC looms ahead

The US Dollar outperformed in overnight trade following reports that negotiators in Congress reached a deal that would fund the government through September – avoiding a fears of a shutdown later this week – and deliver a spending package of close to $1 trillion. The greenback rose alongside front-end Treasury bond yields, suggesting the news helped boost Fed rate hike speculation.

The British Pound proved to be weakest on the session, seemingly stung by harsh sound-bites from both sides of the on-coming Brexit negotiation. The Yen likewise traded lower as news of the US budget deal cheered investors across Asian markets. Regional stock exchanges pushed upward, putting pressure on the perennially anti-risk Japanese unit.

The Australian Dollar proved to be notably resilient, managing to hold up against its US cousin. A mixed bag of local and Chinese PMI figures also failed to inspire a meaningful response from price action.Traders were seemingly reluctant to commit to directional bets ahead of the upcoming RBA monetary policy announcement. Governor Lowe and company are expected to keep the official cash rate unchanged.

Most major European markets are closed today, making for unusually thin liquidity conditions and a bare-bones economic calendar. The Fed’s favored PCE inflation gauge of US inflation and the ISM manufacturing survey are due later in the day, but the outcomes may not generate much follow-through as the markets wait for the FOMC policy statement to cross the wires on Wednesday.

What will drive the US Dollar through mid-year? See our forecast to find out!

Asia Session

European Session

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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