The US: The Democrats rejected two proposals by the Republicans.
The political deadlock continues to cause endless worry for the economists dealing with the financial market. After the weekend’s negotiations, we saw a minor setback rather than any progress.
The issues being contested are, among others
– the time horizon for the debt ceiling and the temporary extension
– should the automatic savings be maintained?
Jyske Bank still expects that the parties will find a solution by Thursday. If that does not happen, the financial market will be in unchartered territory, and we will see rising volatility.
Our assessment of USD this week is:
– as long as the financial market believes in a new agreement USD will continue to fall slowly and gradually, and EURUSD will rise to a level at about 136.50-137.
– if the financial market loses faith, we will see minor panic selling and a safe haven flow will be predominant. This means that equities and commodities will fall and US yields as well as JPY, CHF, USD and GBP will increase.
Read the full report: FX Research
Jyske Bank