US Dollar, Yen and Gold Price Impact of US Debt Ceiling Deadline

Talking Points:

  • Deadline for legislatures to strech agreement on debt roof should be Sep 29th
  • A technical default would criticise a US Dollar’s standing as a protected breakwater currency
  • Past tighten calls saw bullion Yen benefit while stocks, sentiment-prone currencies falter

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The United States Congress earnings from a summer recess on Sep 5th. When voting members arrive back, topics such as President Donald Trump’s promises to cut taxes and boost infrastructure spending competence be temporarily overshadowed by a some-more distinguished near-term risk for a markets.

In 2015, Congress dangling a debt roof around a flitting of a Bipartisan Budget Act until Mar 2017. Since then, a US Treasury has been resorting to unusual measures in sequence to make payments while avoiding going over a stream debt extent of $19.8 trillion. If legislators do not come to an agreement to lift it by Sep 29th, a estimated extent of a unusual measures, a US competence have to go into a technical default.

Conveniently, this is not a initial time that a markets will be unprotected to a hazard like this, distinct a opposite implications of Brexit or a 2015 hazard of Greece’s exit from a European Union. This means that we can demeanour behind to tighten calls in a past, such as in 2011 and 2013, to get an thought of what competence be approaching in a financial markets.

In 2011, Republicans in Congress demanded a necessity rebate as prejudiced of lifting a debt ceiling. The emanate was resolved on Aug 2nd around a Budget Control Act. However, 3 days after ratings hulk Standard Poor’s released a initial ever emperor credit hillside in a emperor government’s AAA (“outstanding”) rating, bringing it down to AA+ (“excellent”). This threatened US supervision bonds’ standing as a world’s many appealing protected breakwater for investors to park their collateral in times of mercantile crises.

Leading into a hillside and as tensions were high in a legislative branch, a Dow Jones Industrial Average and SP 500 quickly fell to their lowest levels of a year. Then, a indexes had one of their misfortune days as a SP hillside undermined a US Dollar’s reserve-currency credentials. The anti-risk Japanese Yen appreciated while a sentiment-linked Australian and New Zealand Dollars faltered. In addition, bullion prices gained belligerent as bond yields fell amid risk aversion, boosting a interest of anti-fiat assets.

In 2013, a debt extent had to be lifted again after former President Barack Obama warned that not doing so could lead to a default. The US supervision finished adult going into a prejudiced shutdown in early Oct before Fitch Ratings placed a nation on “negative watch” mid-month. The corner was resolved on Oct 17th with a flitting of a Continuing Appropriations Act.

Unlike 2011, a part in 2013 was opposite in that no vital financial group (Moody’s, Fitch and SP Global) indeed lowered a emperor credit rating. Even so, there was a identical greeting in equities and a Yen heading into and during a shutdown, despite reduction heated than what we saw in 2011. The Dow Jones and SP 500 batch indexes also had a down day when Fitch released their warning. Simultaneously, a Yen appreciated while AUD and NZD halted their winning strain opposite USD. Gold also enjoyed a boost.

With that in mind, worries about another disaster to lift a debt roof that puts default behind on a list could lead to some déjà vu in a financial markets. This is now difficult by remarks from Donald Trump’s convene in Arizona on Aug 22nd. There, a President threatened to close down a emperor supervision if no supports are allocated to his argumentative debate guarantee of building a wall along US’ limit with Mexico.

Even if legislators overrule a President or come to an agreement,the risk competence not indispensably be over. It will also be needed to keep an eye out for a vital ratings agencies and their interpretations of a final outcome. Downgrades in a US emperor credit rating and/or a nation being placed on “negative watch” again competence stir sensitivity in bonds and sentiment-linked currencies. A some-more auspicious outcome competence support a US Dollar and criticise a interest of gold.

US Dollar, Yen and Gold Price Impact of US Debt Ceiling DeadlineUS Dollar, Yen and Gold Price Impact of US Debt Ceiling DeadlineUS Dollar, Yen and Gold Price Impact of US Debt Ceiling DeadlineUS Dollar, Yen and Gold Price Impact of US Debt Ceiling Deadline

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