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US dollar stronger as debt ceiling talks rumble on

Daily Currency Update

GBP/USD opens a little lower this morning as concerns over the US Treasury running out of cash continue to cause market jitters. Republicans and Democrats are still locked in talks over how much to raise the borrowing limit the US Government has in place (known as the "debt ceiling") and the conditions that will be attached to any raise. From the UK this week's main event will be the latest inflation data which is scheduled to be unveiled at 7am Wednesday morning. The Consumer Price Index is expected to drop significantly from 10.1% to 8.2% as last year’s energy price spike starts to be washed out of the figures. Bank of England Governor, Andrew Bailey, is then scheduled to give two speeches later that day so his view on the inflationary outlook on the back of the latest data could cause some GBP volatility. GBP/USD is currently down to around 1.2430 with GBP/EUR continuing to trade around the 1.15 level.


Key Movers

The Chairman of the US Federal Reserve, Jay Powell, said on Friday that he was concerned about the impact on the banking sector that the rapid series of interest rate hikes implemented by the Fed had caused, calling into question that we will see further policy tightening at its June 14th meeting.

After the collapse of several banks, and inflation seemingly on a steady downward trajectory, a halt to rate hikes is favoured by markets. However some recent better than expected data and commentary by other members of the Federal Open Market Committee means another 25bp hike cannot be discounted.

Crucial to this decision however will be finding a resolution to the aforementioned debt ceiling which will likely run to the 11th hour. US Treasury Secretary, Janet Yellen, has said she expects the government to run out of cash in early June and given the amount the US government can borrow is written into law, Democrats and Republicans needs to find middle ground in the next couple of weeks.

The US defaulting on its debts is highly unlikely, however the longer the impasse drags on then we could see the safety of the US dollar sought. Should the unthinkable happen and the US does default then there would be a major economic shock for the world to deal with which could see a massive move away from the US dollar. However we should stress we have been here many times before and an agreement has always been found. EUR/USD has slipped back under 1.08 this morning mirroring GBP/USD's move.

Expected Ranges

  • GBP/USD: 1.2365 - 1.2500 ▼
  • GBP/EUR: 1.1445 - 1.1545 ▲
  • GBP/AUD: 1.8660 - 1.8810 ▲
  • EUR/USD: 1.0760 - 1.0900 ▼