In analysing the US budget and debt limit discussions, it is very hard not to feel that once again there has been a failure to address the underlying issues. Arguably the most frustrating aspect is that the debt limit is a self-imposed limit, and so the issue ought to be easily resolved.
The previous few weeks of haggling have led ratings agency Fitch to put US debt under a negative review. It could be the first of many reviews of the current rating of US debt, especially as the next deadline for the budget and debt limit straddle the year-end, which is far from an ideal solution.
However the uncertainty has momentarily been lifted, but investors are under no illusion that the problem still exists. Subsequently we have seen almost 100 pips added to EUR/USD this morning and the pair looks to mount a fresh challenge to the month’s highs, while the the year highs above $1.37 can’t be too far from traders’ minds.
We are also awaiting the backlog of US data that has not been announced due to the government shutdown, and with this itself costing the US economy around $24 billion, the state of the recovery is likely to be scrutinized closely.