Did EURUSD miss the news?
Over the weekend, the President and the Speaker of the House of Representatives reached a much-awaited deal on the US debt ceiling. The impending constraint on debt could have forced the shutdown of government departments and precluded the US government from servicing costs and existing debts, triggering a default. The potential ramifications of a shutdown had been widely unpacked and disastrous consequences predicted. As a result of the risk associated with a potential default, there had been a flight to safe assets. This held true at least for those safehavens not directly in the firing line of a default, such as near-dated treasury bills.
The US Dollar was one of those beneficiaries. As one of the key safehaven assets, demand for the Dollar grew with EURUSD retracing significantly from its recent and relatively well supported highs. So now that a deal has been reached, why has EURUSD continued to reflect a stronger Dollar? There are three potential answers:
Firstly, the deal still has to pass votes in the House and Senate, making the success of the deal far from a given. There are many republicans who could still seek to block the deal, delivering the US economy to a likely breach of the debt ceiling. This is a non-negligible risk, however, thanks to the breakthrough over the weekend, a successful and legal deal is now far more likely than it was. Despite residual risks there has been an overall improvement in risk appetite as we have seen reflected within pricing in other markets. The risk that Congress fails to pass the deal is therefore insufficient to explain a lack lustre EURUSD pair.
Instead, perhaps the deal is so much better than expected and therefore the fortunes of the US economy in the years ahead are now materially greater than they were thought to be pre-deal. After all, the impact of the debt ceiling resolution following the impasse in 2011 resulted in a reduction in government spending equal to 0.7% of GDP. This weekend’s deal will only move spending by 0.2% of GDP, according to estimates. Once again there could be a residual impact from a growth reappraisal within EURUSD, however, this is still lacking to explain a break below 1.07.
The only remaining conclusion is that the market pricing within EURUSD is likely due a correction. Given the move in treasuries and equities, we would expect to see at least a limited correction to recent USD strength.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – Sterling defence
Charles Porter
Tue 28 Apr 2026
Sterling defence Options markets are flashing warning signals for Sterling. It’s no secret that the forthcoming Bank of England monetary policy decision later this week poses a risk for the Pound. However, there are risks mounting further afield. The local elections on May 7th are a material risk for GBP, for example, with traders concerned the […]
Daily Brief – Cancelled Travel Plans
Charles Porter
Thu 23 Apr 2026
Cancelled Travel Plans No, this time not because of the impending jet fuel crisis threatening continental travel as we discussed yesterday. Instead, I’m referring to the grounding of Vice President Vance whose trip to Islamabad, Pakistan was cancelled on Tuesday to avoid embarrassment. The Vice President was expected to travel on Tuesday to resume talks […]
Daily Brief – TACO or MACO?
Charles Porter
Tue 21 Apr 2026
TACO or MACO? On Friday markets received headlines of the supposed conclusion to the closure of the Strait of Hormuz. Despite the vast consequences of military action upon the region and beyond, it has repeatedly been the Strait that has been cast as the epicentre of economic (mis)fortune during this war. Therefore, the initial reaction […]
