Despite US debt ceiling talks, the dollar index stayed high on Friday. The index compares the dollar to six major currencies: euro, yen, pound, Canadian dollar, Swiss franc, and Swedish krona. The index moves based on US data, politics, policy, and global risk.
The U.S. debt ceiling limits how much the government can borrow to pay its bills. If it’s not raised, the government will default and cause a global financial crisis. Raising the debt ceiling is vital to maintain the country’s credibility and economic stability.
The U.S. debt ceiling issue is a political game. Republicans want spending cuts to raise it. Democrats say Republicans should raise it because they also spent a lot under Trump. The issue is unresolved.
Biden and McCarthy met on Friday to discuss the debt ceiling issue, which is the maximum amount the U.S. can borrow to pay its bills. They expressed some willingness to compromise, but no deal was reached.
Market fears of debt default eased by positive signals, driving investors away from safe-haven assets like dollar and gold. Strong U.S. labor data raised Fed tightening expectations. These factors supported dollar and limited its decline.
The dollar index fell on Friday due to U.S. debt ceiling talks. But the issue is still risky and could boost the dollar if no deal is reached or new conflicts arise. Fed Chair Powell will speak on Monday and affect the dollar index. Watch these events and trade based on market and technical analysis.
The original article is as follows:
With a possible debt default just 11 days away, President Biden and House Speaker McCarthy will meet in person at the White House on Monday to resume negotiations around the debt ceiling.
McCarthy told reporters that he had a “productive” call with Biden on Sunday and that bipartisan staff would resume talks later in the day. A White House spokesman confirmed that Biden and McCarthy will meet on Monday. It is not yet known when the meeting will begin.
Stalemate and Tensions Over Debt Ceiling
Raising the debt ceiling is necessary for the government to pay for spending commitments already approved by Congress and the president to prevent a default. Raising the debt ceiling does not mean authorizing new spending, but House Republicans have said they will not raise the debt ceiling if Biden and lawmakers do not agree to future spending cuts. As a result, the divided congressional deliberations have been tense.
In a news conference earlier Sunday before leaving Japan for the G7 summit, Biden said Republicans “need to change their extreme positions. After negotiations stalled Saturday night, Biden said he planned to call McCarthy on his way back to Washington.
Biden said, “It’s time for Republicans to acknowledge that it’s impossible to reach a bipartisan agreement completely and totally on their partisan terms.”
McCarthy told reporters Sunday after arriving at the Capitol that he was glad the president was back in the United States. He said, “I think he has to get rid of the socialist wing of the Democratic Party and represent America. That means both sides have to make compromises. I’ve been there.”
Warning of Economic Disruption
Treasury Secretary Yellen said Sunday that if the debt ceiling is not raised, “hard choices” will need to be made about which bills will not be paid. Yellen reiterated her warning that the U.S. could default on its debt as early as June 1, which she said could lead to widespread “economic disruption. She said that if Congress does not act, there will be no good results.
We are focused on raising the debt ceiling, and if we don’t do that, we’re going to face tough choices,” she said on the TV show. Whatever decision we make, if we don’t raise the debt ceiling, there won’t be an acceptable outcome.”
Yellen warned last Tuesday that the White House Council of Economic Advisers found that a debt default could lead to a recession as severe as the Great Recession, with 8 million Americans losing their jobs and the market value of the U.S. stock market falling about 45 percent.
She also noted that a report by Moody’s Analytics (Moody ‘s Analytics) found similar numbers, with more than 7 million people out of work in the U.S. and $10 trillion in household wealth evaporated. Yellen also warned that a breach of the debt ceiling could affect essential government services.
Biden said Sunday that he thought a deal could be reached with Republicans, but was not certain. He said: I can’t guarantee they won’t do something outrageous to force a default.”
Prospects of a Deal and Dollar’s Response
This comes after a stalemate over the U.S. debt ceiling led to a drop in the dollar. With President Joe Biden and House Speaker John McCarthy opening talks again and Biden hinting at the prospect of a deal, progress appears to be in sight to resolve the debt ceiling issue. If the issue can really be resolved or progress, the dollar index is expected to gain support, investors need to keep an eye on this.
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