Home Daily Commentaries Concerns grow on US debt ceiling

Concerns grow on US debt ceiling

Daily Currency Update

German ZEW economic sentiment data followed the early UK employment data on Tuesday – UK unemployment rose, and benefit claims increased by 15.5k. A significant decline was seen in the German May survey, falling 14.8 points from the previous release taking the points into minus territory for the first time since December. Despite the disappointing news, the EUR has continued to trade in narrow ranges against both the GBP and USD. US retail sales rose less than expected in April, with volumes growing month-on-month at a pace of 0.4%. The USD was gaining ground back against both the EUR and GBP ahead of the release and continued after. However, a lot of the USD strength seen in the past 24 hours will be down to growing concerns about the US debt ceiling with the deadline looming. In times of uncertainty, market participants buy safe haven assets such as the USD as a safe haven. Conversations continue between US President Joe Biden and Republican Kevin McCarthy to increase the amount of debt the government can accrue. Failure in the ceiling being increased would be catastrophic to the US and global markets. GBP/USD is back below 1.2500 and currently at 1.2450. EUR/USD sits at 1.0840.

In the day ahead, economic data from Europe will be the final Eurozone consumer inflation figures for April, which are expected to show that prices remained elevated, and Bank of England Governor Bailey is due to speak at the British Chambers of Commerce Global Annual Conference, in London. Any sound bites from him on future economic guidance for the UK will shift the GBP.

Key Movers

Sterling has been on the rise against both the Euro and, both the Australian and US dollar since the start of the year. This is despite local data painting far from a pretty picture, with growth forecasts revised lower, talks of a recession before the end of the year, and inflation remaining above 10%. The Bank of England recently raised interest rates a further 0.25% to 4.5% to tackle inflationary concerns. This indicates that the GBP is being bought as a riskier asset as the market secures itself. The recent concerns over the debt ceiling in the US have caused the GBP to lose a little ground against the EUR and USD recently but would imagine it will continue to gain if resolved. GBP/AUD had touched 1.9000 but is back down at 1.8700, GBP/EUR was 1.1520 but is a little lower at 1.1470 and GBP/USD fell shy of touching 1.2650 and now sits at 1.2430.

Expected Ranges

  • GBP/USD: 1.2390 - 1.2480 ▼
  • GBP/EUR: 1.1450 - 1.1510 ▼
  • GBP/AUD: 1.8650 - 1.8780 ▲
  • EUR/USD: 1.0740 - 1.0860 ▼