Article Hero

Dollar Weakens and Gold Rallies as Tentative Debt Ceiling Agreement Reached

Miguel A. Rodriguez
Miguel A. Rodriguez
31 May 2023

The big news in the market that the US congress and some republicans are said to be opposed to an initial debt ceiling deal agreed upon over the weekend, has brought the Dollar down and gold up. On the stock market front, however, technology companies are full steam ahead.  

After US president Joe Biden and US House of Representatives speaker Kevin McCarthy reached a preliminary agreement over the weekend to raise the country's debt limit and prevent a default, the major Wall Street indices opened the session higher yesterday. The big winner of this short-term agreement, which was signed on Sunday, seems to be technology companies which are mainly involved in chipmaking and AI-related business as they, especially Nvidia, as they drove the rally.   

Related Article: Growth stocks

However, the deal still needs to be approved by the US Congress, and some Republican lawmakers have stated that they will vote against it because they do not think the proposed spending cuts are sufficient. Democratic representatives have also voiced their disapproval, claiming that Biden gave too much during the negotiations. The market is still cautiously assessing the deal because, in short, the partisan conflict is still ongoing. 

This being said, there were already indications yesterday that the market was more upbeat in this regard. For example, yesterday, US Treasury yields decreased in conjunction with a large decline in the cost of insurance against the risk of a US debt default, or credit default swaps. 

The Dollar weakened against all major currencies as a result of the decline in market interest rates, with the EUR/USD pair recovering about 50 pips from the daily lows of 1.0670.   

Gold surged near $20 per ounce on the back of a declining Dollar, breaking through the $1954 resistance area after reaching an oversold area and exhibiting positive divergences on the hourly RSI.   

Related Article: Buying Gold 

Nvidia Corp., which said on Monday that it was developing Israel's most potent AI supercomputer to fulfil rising customer demand for AI applications, continued to lead the market in the stock market with gains of 7%.   

The market capitalization of the most valuable chipmaker in the world is on pace to reach $1 trillion for the first time. 

 

dmo graph 31.05.2023.png

Sources: Bloomberg, Reuters 

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

Share this article

How did you find this article?

Awful
Ok
Great
Awesome

Read More

Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.