The Tell: A potential U.S. debt-ceiling suspension may present an upside risk for dollar, says BNP Paribas

by | May 15, 2023 | Stock Market

After the Federal Reserve wrapped up its latest monetary policy meeting and finally left the door open to halting its aggressive interest-rate-hiking campaign, the looming U.S. debt-ceiling crisis has taken center stage in financial markets as investors are holding out for an update on plans to resolve a three-month standoff and avoid a default on U.S. Treasury debt. 

A team of strategists at BNP Paribas, led by foreign exchange strategist Alexander Jekov, said they expect the U.S. debt ceiling to become “an increasingly important theme” for markets, and a potential suspension may give room for the U.S. dollar
to jump. “The U.S. debt ceiling presents an asymmetric upside risk for the U.S. dollar, in our view,” the strategists wrote in a Sunday note. “While there is no clear pattern as to how the USD trades into the U.S. Treasury’s X-date historically, once the debt ceiling is suspended or raised, the USD tends to either rally or trade flat.” (See chart below): 


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