S&P500 Futures, yields struggle to justify US policymakers’ optimism about debt ceiling talks

• Market sentiment remains mildly positive as US President Biden, Treasury Official Adeyemo push back default fears.
• Hawkish Fed talks, mixed US data and geopolitical fears join US policymakers’ disagreements to keep traders on their toes.
• Second-tier US data, central bankers may entertain traders but US debt ceiling talks are the key.

Risk appetite improves a bit during early Monday as the US policymakers hint at a solution to the looming US debt ceiling expiry. Adding strength to the market’s cautious optimism may be the lack of major data/events, as well as mixed comments from the Group of Seven (G7) nations.

Even so, the large differences among the US diplomats on the steps needed to avoid default and the G7 nations’ readiness to announce more sanctions on Russia keeps the pessimists on the table. On the same line could be the central bankers’ hints for the “higher for longer” rates, ex-Bank of Japan (BoJ).

Amid these plays, S&P 00 Futures struggle during the third day of losses near 4,135 whereas the US 10-year and two-year Treasury bond yields remain sidelined around 3.46% and 3.98 respectively, after rising the most in three days on Friday.

During the weekend, Reuters came out with the news stating that US President Joe Biden said he expects to meet with Congressional leaders Tuesday for talks on a plan to raise the nation's debt limit and avoid a catastrophic default.

Also positive were comments from US Deputy Treasury Secretary Wally Adeyemo while speaking at the CNN interview as he said, “The congressional staff has been "constructive," as the two sides seek a deal to avert a possible first-ever US default on June 1.”

On the different page, various policymakers from the European Central Bank (ECB) and the Federal Reserve (Fed) defended their current hawkish plays during the G7 central bankers’ meeting. Though, BoJ Governor Kazuo Ueda keeps praising the easy-money policy, recently backed by Japan’s softer Producer Price Index (PPI) for April.

Elsewhere, Reuters quotes anonymous officials with direct knowledge of the discussions while saying that the G7 leaders plan to tighten sanctions on Russia at their summit in Japan this week, with steps aimed at energy and exports aiding Moscow's war effort.

Amid these plays, the US Dollar Index (DXY) buyers take a breather while the Gold price pares the recent losses near $2,020. However, WTI crude oil remains pressured near $69.70, the lowest level in nearly two weeks.

Moving on, Tuesday’s US debt ceiling talks will be the key for the DXY traders to watch for immediate directions. Following that, US Retail Sales and a speech from Fed Chairman Jerome Powell should be eyed closely for a clear guide.

Also read: Forex Today: Despite all, Dollar ends week stronger