European stocks are expected to fall sharply at the open on Friday, following the rebel Republicans' refusal to back a budget plan proposed by congressional leaders.
It is unclear when lawmakers will finally vote on a plan or what concessions will be needed to overcome opposition from Republicans calling for spending cuts and no tax hikes.
The dollar was slightly lower in Asian trade, with the euro failing to make significant gains amid fears over rising borrowing costs for the Italian government following a disappointing bond auction on Thursday.
Christine Lagarde, the head of the IMF warned a failure to reach an agreement on the debt ceiling could lead to a fall in the dollar and raise doubts about the greenback’s status as a reserve currency.
The Wall Street Journal reports the US treasury would prioritize payments to bondholders in the event that the debt ceiling is not raised, to avoid a damaging default.
In Europe debt news, Moody's announced it put Spain's credit rating under review for a possible downgrade.
Friday is a busy day for corporate earnings in Europe.
Total reported profit in line with expectations by analysts surveyed by Dow Jones.
PPR , the French luxury and retail group, beat forecasts in the first half of the year while utility EDF 's earnings also exceeded expectations.
EADS also beat forecasts in the first half of the year and said it would keep the full-year targets.
Anglo American reported profit of $3.99 billion in the first half and increased its interim dividend while BSkyB also hiked its dividend by 20 percent.
Deutsche Boerse missed forecasts as lower volatility for stocks hit trading volumes.
Investors will watch shares in Vodafone at the open in London following news that its US partner, Verizon Wireless, will finally pay a dividend payment.
Following years of fighting over the release of funds to Vodafone, which owns 45 percent of the mobile operator, Verizon Wireless management have agreed to pay a $10 billion dividend, of which Vodafone will receive $4.5 billion.
It is thought Vodafone had wanted $5.5 billion.
The Financial Times reports shareholders in BP want to see Chairman Carl-Henric Svanberg fired due to what they perceive as a lack of strategic direction at the oil giant following the Gulf of Mexico disaster in 2010.
- Antonia Oprita, CNBC.com, contributed to this report