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Quiet in UK and Focus Shifts to US Debt Ceiling

Quiet in UK and Focus Shifts to US Debt Ceiling

The continued gridlock and lack of any visible progress for any resolution in the US is still the main story in the markets this week. Although clearly a political issue, this also severely affects what is happening on the FX markets.

Also in the US, we are starting to see further focus on the issue of the debt ceiling. Although there is disruption on the release of US figures and data, we are looking at how they are going to manage their debt with 17th October being D-Day. Working in magical, contradictory ways, the closer we get to 17th October without a plan, the more we could see a stronger US Dollar as a higher risk of default means less risk in the market. When this happens, USD is seen as a “safe haven” and so would normally strengthen. The prospect of tapering also seems quite distant at the moment.

In the UK, we should see a relatively quiet week, with the interest rate decision from the Bank of England on Thursday. No change is expected to either the benchmark rate or the asset purchase target of £375bn. There are also some industrial and production figures released on Wednesday.

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