Dollar last year reached a long-term high and has now begun a period of depreciation – MUFG

The Dollar remains broadly unchanged in the FX markets with no obvious macro news to drive the markets ahead of the key US inflation data. As debt ceiling talks see no progress, economists at MUFG Bank expect the greenback to remain vulnerable.

Debt-to-GDP is trending higher and is unsustainable

“We see a short-term solution as the most plausible at this stage. A suspension of the debt ceiling until 30th September would allow discussions to take place over the debt ceiling and the budget simultaneously (but separately) and a budget agreement for next year could at least be viewed in the context of what is going to be required for longer-term fiscal policy to stabilise debt in GDP terms.”

“What remains clear and in need of addressing is that under current legislation, debt-to-GDP is trending higher and is therefore unsustainable. The problems are vast even beyond the resolution of the debt-ceiling standoff and reinforce our longer-term US dollar view that the Dollar last year reached a long-term high and has now begun a period of depreciation.”