FX markets are returning to mull progress on a US debt ceiling deal. Progress on the deal will allow investors to focus on sticky US inflation – likely seeing the Dollar hold onto recent gains, economists at ING report.

Progress on debt deal allows markets to focus on another Fed hike

“Assuming there are no hiccups in the deal's passage, FX markets can return to the most pressing issue of sticky inflation and what central bankers plan to do about it.”

“One additional 25 bps Fed hike is now fully priced by the time of the 26 July meeting. Money markets price a 63% chance of that hike coming earlier at the 14 June meeting. The default view, therefore, seems to be that the Dollar can hold its recent gains at least into that June meeting.”

“This week sees US JOLTS job opening data (Wed), ADP (Thurs.), and the May NFP (Friday). Barring any major downside miss in these releases, it looks like the market will support another 25 bps hike from the Fed, continued inversion in the US yield curve, and a strong/stronger Dollar.”

“DXY looks comfortable above 104.00 and could extend recent gains to 104.65 or even 105.30 this week