Currency Note US Dollar

US politicians avoid jumping off the cliff, for now

By Smart Currency October 18th, 2013

The US dollar’s performance was this week driven by the uncertainty surrounding the government shutdown and will they/won’t they extend the debt ceiling. In the early stages, gains were made by the US dollar as hopes of a deal being struck to avoid the US defaulting on its debt increased. Late Wednesday night, this optimism was rewarded with an agreement. In reality, however, this had the opposite effect on the country’s currency, with the feeling that this was little more than a short term fix, as the parties had merely agreed to “kick the can down the road”. The underlying issues still remain, and this whole situation could well be repeated in the new year. The deficit cuts are due to be discussed in December, the government is set to shut down again on January 15th if a new deal is not made and the debt ceiling must be raised by February 7th 2014 to avoid default. Following this news, a Chinese rating agency downgraded the US credit rating and rumours spread that Fitch (one of the big three credit rating agencies) was considering a full downgrade following its decision to lower the US AAA credit rating to a negative outlook earlier in the week. The whole situation also meant that the likelihood of tapering happening any time soon was reduced, further weighing down the currency. Today there are a number of speeches from members of the Federal Reserve but the fallout from the larger issues will still be in investors’ minds. Get in touch with your trader now for the latest on the US dollar, with the outlook a little bleak.