The U.S. dollar has soared to levels unseen since mid-March, fueled by encouraging progress on the debt ceiling deal and mounting expectations of impending Federal Reserve interest rate hikes.
The debt limit deal cleared the major hurdle of the House Rules Committee on Tuesday, in a 7-6 vote. The House of Representatives is poised to cast its crucial vote on the bill on Wednesday.
“I think we have the votes to pass this today,” Rep. Patrick McHenry (R-NC), a GOP negotiator on the debt deal, told CNBC on Wednesday.
Congress is working to pass the package prior to June 5, a deadline marked by a warning from Treasury Secretary Janet Yellen that the U.S. may fail to fulfill some of its financial obligations.
The U.S. dollar index (DXY), which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, has gained almost 3% so far in May, marking the strongest monthly performance since September 2022. Meanwhile, market-implied probabilities about a 25-basis-point Fed rate hike in June have surged to 65%, up from nearly 32% a week ago, according to CME Group Fedwatch.
Any Risks At The House?
The result of the upcoming House vote on the debt ceiling deal, according to Goldman Sachs analyst Alec Phillips, is less uncertain than the vote in the Rules Committee on Tuesday. The biggest risk is that each party depends on the other to get the majority of votes, and there isn't sufficient coordination between the parties. However, Phillips thinks the risk is low, as a simple majority is needed, and anticipates House Republicans to supply around two-thirds of the vote, with Democrats contributing roughly one-third.
If the House approves the proposal on Wednesday, it will go to the Senate, where it has a good chance of being approved by the end of the week.
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