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
DXY,
-0.24%
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):
SOURCE: BLOOMBERG, MACROBOND, BNP PARIBAS
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