US President Joe Biden and Republican leader Kevin McCarthy are expected to finalize a two-year deal raising the U.S. government’s $31.4 trillion debt ceiling, even as the US Treasury funds continue to drop and rating agencies issue warnings of negative ratings. The bipartisan agreement, anticipated to be completed on Friday, May 26, will cap spending on nearly everything except military and veterans-related expenses. Interestingly, it will not impact health and retirement programs, which contribute to the soaring U.S. debt levels.
As part of the deal, the White House has scrapped its plan to increase funding for the Internal Revenue Service (IRS). At the same time, the US Treasury Department intends to cover expenses for another week by selling $119 billion in debt. The federal government’s precarious financial situation has prompted credit rating agencies such as Fitch to place US credit on negative watch.
While U.S. Treasury yields and the US Dollar Index (DXY) experienced a decline, investors turn their attention to the April Personal Consumption Expenditures (PCE) core inflation data, a key Federal Reserve metric for measuring inflation. The data revealed that core PCE inflation rose to 4.7%, slightly higher than the market expectation of 4.6%.
The uptick in core inflation has opened the door for the Federal Reserve to consider raising interest rates at the June Federal Open Market Committee (FOMC) meeting. This decision is further spurred by the tightening job market due to rising inflation. Crucially, the news of escalating core inflation correlates with a drop in Bitcoin’s (BTC)price, falling to $26,382 and leading to a broader market selloff in the cryptocurrency space.
However, the crypto market’s downturn and the US dollar index’s decline seem to move in opposite directions, with DXY falling below 104 in the past 24hrs to a 24-hour low of 103.85. This trend further highlights the ongoing tension between the traditional financial sector and the cryptocurrency market.
As the debt ceiling deal progresses, market players and cryptocurrency enthusiasts will closely watch each development in areas including increased government spending, inflationary trends, and potential interest rate hikes. Ultimately, the impact of these various factors on the traditional financial sphere and the world of cryptocurrencies remains to be seen. However, for now, the market’s reactions to events such as the debt ceiling deal and PCE inflation data provide a glimpse into the intricate relationship between the financial and digital asset sectors.
Source: Coingape
