Congress have not yet compromised to raise the debt ceiling. They have not decided on the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.
As usual, a last-minute deal is expected to avoid a US default which as we all know will have tremendous consequence globally. A default, or even a high likelihood of default would be something too scary for anyone to even imagine. Although Moody’s have only stated that it is a short term event, many know that the House and Senate would eventually pass a 3-month federal funding bill. If you are looking for a long-term solution, there aren’t any right now and many traders and investors will remain caught up in this limbo.
As we can see last week, risk appetite in the markets were not out in full force. The US Treasury Secretary Jacob Lew warned of the US debt problem last week and that burst the bullish mood last week. The US government would have less than US$ 50B in cash by mid-October and expectations that a deal could be reached to raise the debt limit is “a bit greater than it should be”.
Personally, I feel that the US government will never allow themselves to be shut down. To undo an action like that would require much greater resources and resolve than actually preventing that from happening in the first place.
We are expecting this issue to cause some bearish movements in the market next week for the US dollar.
~ Ardy Ismail