It felt like we were heading towards an agreement in the US last week, only for it to fall apart over the weekend. In theory, the US debt ceiling will be hit later in the week, meaning the prospect of a US default remains a real and present danger. More negotiations are set to take place today, with Democrat leaders in the senate confident that a deal will be reached. The FX reaction remains relatively muted. The yen is still the most sensitive currency to the developments in the US, having moved towards the 98.00 level in early Asia trade, with the dollar only modestly softer vs. other currencies. If leaders continue to talk, then further dollar weakness is likely as the week goes on.
Data/Event Risks
USD:Â More talks are scheduled for today between house leaders, but being scheduled later in the US day, no progress is likely to be seen during European hours.
AUD:Â The minutes to the last policy meeting are released overnight. The RBA is now seen on hold, so impact on the Aussie should be limited.
Further reading:
US debt ceiling
Forex Analysis: EUR/USD Struggles to Advance from Consolidation
