EUR/USD has corrected lower so far this month after failing to break above the 1.1000 level on a sustained basis in late April/early May. Economists at MUFG analyze the pair’s outlook amid US debt-ceiling negotiations. 

A more timely deal to raise the debt ceiling would be better for the USD

“The main source of uncertainty for the performance of EUR/USD in the month ahead will be the US debt-ceiling negotiations.”

“We expect the EUR to strengthen against the USD if the negotiations move closer to the so-called ‘X-date’, and then reverse once a deal is reached.”

“A more timely deal to raise the debt ceiling would be better for the USD and expectations for further Fed rate hikes in the near-term.”