The impasse over the US debt ceiling increase is emerging as an increasingly short-term supporting factor for the Dollar, economists at ING report.

Debt-limit impasse giving Dollar a lifeline

“A meeting between President Biden and Congress Republicans did not yield much progress on a potential agreement, and while Republican leader Mitch McConnell dismissed the risk of a US default, he admitted the negotiations were at a stalemate. For now, a short-term debt-limit extension, which would be the quickest solution, has been ruled out.”

“The current situation is inevitably weighing on risk sentiment and offering support to the Dollar. There is now growing concern that it might actually take a market sell-off (in the equity or money markets) to break the impasse. This would be a scenario where the Dollar would get a significant near-term boost, also considering USD speculative shorts have risen steadily in the past few months, and one of the reasons why we favour a delay in the start of the greenback’s downtrend to the third quarter.”