The DXY Index mirrored the US Treasury 30Y yield overnight. DXY depreciated initially from 100.9 to 100.1 before ending the session 0.7% lower at 100.4. The US Treasury 30Y yield rose above 5% before returning to 4.90%. The long bond yield responded to how Moody’s decision (on May 16) to axe the US’s final triple-A debt rating intensified divisions within the Republican Party over US President Donald Trump’s proposed tax cut and spending bill. US Treasury Scott Bessent dismissed the downgrade as a “lagging indicator” and blamed the fiscal challenges on the previous administration’s policies. Moody’s projection for the federal debt to increase to 134% of GDP by 2035 from 98% in 2024 led the hardline fiscal conservatives to call for substantial spending cuts to support Trump’s fiscal plan.
We recalled that towards the end of Trump 1.0, worries heightened over the USD’s status as the world’s primary reserve currency driven by rising protectionism, the withdrawal from international agreements, the challenges to Fed’s independence, and the erosion of institutional credibility – the same factors that are back in Trump 2.0, only more pronounced. 
Here's Bessent’s for getting Trump’s “One Big Beautiful Bill Act” passed by Independence Day. Phase 1 was completed on May 18, with the House Budget Committee passing the bill with a narrow 17-16 vote after concessions were made to fiscal conservatives. Phase 2 will seek to secure passage in the House of Representatives, where Republicans hold a 213-200 majority, by May 26. Expect the fiscal conservatives to demand deeper spending cuts. Phase 3 will seek passage in the Senate by early June by utilizing the budget reconciliation process to pass the bill by a simple majority, bypassing the filibuster. Phase 4 will present the final version to Trump for signing by July 4.
Atlanta Fed President Raphael Bostic is posturing towards only one interest rate cut this year, fewer than the two cuts projected in the Fed’s Summary of Economic Projections. Bostic said it would take 3-6 months to assess how the tariffs would impact the US economy, evidently pointing to the end of the 90-day tariff pause in July for most countries, and August for China. For now, Bostic viewed the labour market as resilient, with tariffs posing a greater risk to inflation. Pay more attention to other Fed officials for comments that suggest a more cautious interest rate rate-cutting cycle in the upcoming June 17-18 FOMC meeting’s Summary of Economic Projections.
Quote of the Day
“There is more to life than being a passenger.”
Amelia Earhart
May 20 in history
In 1932, Amelia Earhart took off from Newfoundland to begin the world's first solo nonstop flight across the Atlantic Ocean by a female pilot, landing in Ireland the next day.
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