The inflation data expected today will be decisive. If we see a larger decrease in price pressure, especially in core prices, we can confidently bet that the committee will announce a pause tomorrow and may hint at what to expect in July of this year. We will discuss all this in more detail tomorrow.
Right now, I would like to say a few words about the fact that the US government's budget deficit for the first eight months of the fiscal year reached $1.16 trillion, which is 191% higher than a year ago. According to data released yesterday by the Treasury Department, the deficit for May this year jumped to $240 billion which is twice as much as the deficit in May 2022.
The main reason for the increase in expenditures in the fiscal year remains the growth of interest expenses. However, these expenses decreased in May compared to last year due to lower interest payments on inflation-protected treasury securities. Higher Medicare and Medicaid costs, as well as federal deposit insurance expenditures related to the bankruptcy of a small number of regional banks this spring, also contributed to increased spending.
As for the revenues, withheld taxes, including capital gains taxes, fell by $74 billion in May compared to last year and by $260 billion in the current fiscal year.
However, despite continued high spending, recent bipartisan efforts to abolish the US debt ceiling should result in some reduction in expenses. Although experts have repeatedly noted that, despite the agreements reached, this will not lead to significant changes in expenditures in the long term, as the discussion was more about discretionary items.
As for the technical outlook for EUR/USD, buyers need to protect 1.0768 and seize 1.0800 to maintain control. This will allow them to move towards 1.0830. From this level, the price can climb to 1.0875 but this will be a challenging task without good fundamental statistics from the eurozone. In the event of a decrease in the trading instrument, buyers may assert their strength only at 1.0765. If nothing happens there, it would be good to wait for a retest of the low of 1.0730 or to open long positions at 1.0700.
As for GBP/USD, the demand for the pound remains strong. We can expect a rise in the pair after taking control over 1.2560. Only breaking through this level will allow a further recovery to 1.2600, after which a stronger rise of the pound to 1.2640 is possible. In the event of a fall in the pair, bears will try to take control over 1.2520. If they succeed, breaking through this range will shake positions of the bulls and push GBP/USD to a low of 1.2480 with the prospect of reaching 1.2450.
