Debt Ceiling Anxiety Pushed DXY Dollar Index Back to February Lows

The DXY Dollar Index Spot returned to its February 2023 lows despite renewed inflation worries, making investors to believe that at least two more interest rate hikes during this year are on the table. Meanwhile, the cost of insuring United States sovereign debt rose Thursday, April 20, to its highest level since 2011 on market fears that the U.S. Government could hit the national debt ceiling earlier than expected. Spreads on five-year U.S. CDSs (credit-default swaps) widened to 49 basis points, S&P Global Market Intelligence data showed. That's more than double the level they were at in January this year.

Treasury Secretary Janet Yellen earlier this year set a deadline for “extraordinary measures” to temporarily avoid default.

Analysts at Goldman Sachs Group Inc. warned Tuesday that the U.S. default date could be closer to June than August, as some economists had predicted, because of lower tax revenues.

On Wednesday, House Speaker Kevin McCarthy unveiled a plan that would cut discretionary spending by $130 billion and raise the U.S. national debt ceiling by $1.5 trillion. He called for repealing the climate and health care law, known as the Inflation Reduction Act, passed last year, and for repealing Biden's legally problematic student debt relief plan.

Republicans, in their turn, refused to uplift the U.S. national debt threshold without major concessions, and Biden called the demand non-negotiable. Even if McCarthy's proposal had been approved by the House, the still-Democrat-controlled Senate would have refused to honor their votes for it.