After the markets breathed a deep sigh of relief after the ‘fiscal cliff’ deal was finally agreed upon, concern quickly set in for the next battle on the horizon.
Most currency’s that saw big gains yesterday have now retreated as investors seek shelter in the safe-haven currencies of the US Dollar and Japanese Yen.
President Barack Obama scored a victory on Tuesday night after successfully getting the deal passed by a hostile House of Representative. The US government may have averted imminent financial disaster, but that victory is set to be short-lived. As soon as February the whole saga is set to play out again only this time the fight will be harder and the stakes higher.
Now Obama must prepare to tackle the Republicans, who are angry that the fiscal cliff deal fails to curb the federal deficit and who are promising to use the debt-ceiling argument to win deep spending cuts. A failure to resolve the Debt ceiling argument could see another credit downgrade following a similar showdown in 2011.
“Our opportunity here is on the debt ceiling,” Republican Senator Pat Toomey of Pennsylvania said. “We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean.”
But Obama and congressional Democrats may be emboldened by winning the first round of fiscal fights when dozens of House Republicans buckled and voted for major tax hikes for the first time in two decades.
“We believe that passing this legislation greatly strengthens the president’s hand in negotiations that come next,” House Minority Leader Nancy Pelosi told NBC in an interview.
Economists believe that the next battles will represent a far greater threat to the markets than the ‘fiscal cliff’ with some warning of a default by February as-well-as a credit rating downgrade.
Let’s hope that Obama gets plenty of rest during his holiday to Hawaii, he’s going to need all the energy he’s got.
The Pound to Euro exchange rate is currently trading at 1.2332
The Pound to US Dollar exchange rate is currently trading at 1.6216
The Pound to Australian Dollar exchange rate is currently trading at 1.5433
The Euro to US Dollar exchange rate is currently trading at 1.3146
The Euro to Pound exchange rate is currently trading at 0.8107
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