US: The more the time of a possible default approach, the more probable a change in sentiment is – Commerzbank

The negotiations to avert the US default were postponed to next week at short notice. Economists at Commerzbank note that this issue is not a concern for FX markets at the moment.

Sentiment could change at any moment

“The fact that the Dollar appreciated yesterday proves that the USD reaction to a hypothetical US default would be anything but trivial, as the Dollar benefitted yesterday as a result of resurging fears about the stability of regional US banks, which underlines the significance of the USD as a safe haven currency.”

“This should not, however, lead to the conclusion that the subject of the US debt ceiling will remain of no concern to the FX market. Sentiment could change at any moment, and the likelihood of that happening increases the more the time of a possible default approaches. That means the currently low vol levels could constitute an attractive hedging possibility.”