House of cards for USD and EUR?
I was rather surprised watching the BBC News last night cover the Libyan crisis, Afghanistan and the Olympic countdown, but no mention of the looming disaster if America fails to raise its national debt ceiling! Lets be clear, failure to reach an agreement would mean of Tuesday the US would not be able to pay all of its bills and could push a teetering world economy over the edge. For several weeks, commentators have stressed that this delay has been down to brinkmanship between the Republican and Democrat parties and that a deal would eventually be done before the 2nd August deadline. Well, this political game of chicken is intensifying with every day that passes and there is very little sign of either party conceding ground. Markets have been jumpy in recent days with the Dow Jones down 1.6% yesterday and gold, which investors buy in times of fear, reaching a new all time high of $1630.This volatility will only intensify as the deadline approaches, with traders hoping that as the repercussions of failure are so great for the world economy and US national pride, it will force both parties into an 11th hour agreement. Closer to home, the manufacturing sector once the star of the recovery appears to be losing more steam with a CBI survey showing business optimism in the sector fell from +9 in April to – 16 in July – indicating more manufacturers are less optimistic than they were three months ago. With the UK economic strategy very much geared towards an export led recovery, this news will add to the Chancellor’s woes as he tries to stimulate a near stagnant economy. In morning trading the dollar remained weak, as the US debt story rumbled on. The pound traded at 1.6346 against the dollar, slightly up from yesterday’s closing price of 1.6329. Sterling was also up against the euro at 1.1376, with downgrades to the credit rating of Cyprus and concerns that the EU bailout fund will not have the muscle to deal with another crisis weighing on the single currency.