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Investors are bracing for rising foreign exchange volatility and falling stock markets as the U.S. debt ceiling deal struggles.
The dollar edged lower against most major currencies during Asian trading hours on Monday, as market participants assessed the latest developments in debt talks. U.S. President Joe Biden said his phone call with House Speaker McCarthy was “going well” and the two sides plan to hold an interview on Monday afternoon.
The delay in U.S. debt-ceiling talks is another unwelcome development for investors already facing uncertainty over the Federal Reserve’s June policy meeting.JPMorganandMorgan StanleyStrategists warned that the debt ceiling issue is a stalemate that threatens the outlook for the stock market, and traders are also flocking to major currency swaps and options products to hedge their portfolios.
“Despite some positive news, history shows these lawmakers will drag things to the last minute, which will add to market volatility,” said Carol Kong, a strategist at Commonwealth Bank of Australia in Sydney. “And once a deal is reached, the focus will quickly shift back to economic data and the FOMC, which I think will lead to further modest gains in the dollar.”
European Central Bank President Christine Lagarde called on U.S. politicians to resolve the debt-ceiling impasse on Sunday. U.S. Treasury Secretary Janet Yellen warned that the chances that the U.S. government will be able to pay all of its bills by mid-June are quite low.
Wall Street is bracing for the worst as lawmakers feudBank of AmericaIndustry executives are trying to predict how the market will be affected if the government fails to pay its bills. Some recalled 2011, when similar events led to wild price swings across asset classes.
Still, investors may not be prepared enough. Some 71% of respondents to a recent Bank of America survey expect the debt ceiling to be resolved by the so-called “Day X.”
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Editor in charge: Liu Mingliang