The world’s largest economy averted economic disaster on Tuesday night when lawmakers finally approved a deal to stop massive tax hikes and spending cuts that would surely have toppled the USA and most likely the world back into recession.
As a result of the successful negotiations the US Dollar slipped to a 16-month low against the British Pound and weakened to its lowest since last May against the Euro. Traders opted for riskier assets as the news broke.
The negotiations had been dragging on for months with neither political group backing down. The Republicans had been against tax hikes on the wealthiest citizens, but were forced to decide whether to accept a $620 billion tax hike over 10 years on the wealthiest or take the blame for allowing the nation to slide into budget chaos.
The backing down of the Republicans allowed President Obama’s Democrats to get most of their way and put an end to months of speculation for households and businesses across the country. Obama hailed the reached deal after the House of Representatives passed a Senate backed deal by 257 votes to 167. In Tuesday night’s house vote, 172 Democrats and 85 Republicans voted in favour of the bill. A majority of Republicans, 151 in total, voted no, along with 16 Democrats.
“I will sign a law that raises taxes on the wealthiest 2% of Americans… while preventing a middle-class tax hike,” President Obama told a White House press conference.
The US deficit was still too high, he said: While open to compromise on budgetary issues, he would not offer Congress spending cuts in return for lifting the government’s borrowing limit, known as the debt ceiling.
“There is a path forward, if we focus not on politics, but on what’s right for the country,” He added.
Disaster may have been avoided for now but already dark clouds are forming on the horizon. The agreement reached on Tuesday has delayed cuts of up to $109 billion in military and domestic programs by only two months meaning that the US is not out of the woods just yet. The next battle for Obama will be over the nation’s debt ceiling that currently stands at $16.4 trillion. Republicans are hoping to force the President to make cuts to welfare programmes such as the controversial Medicare.
Congress must act as early as mid-February to prevent a default and the dispute may reprise a similar 2011 episode that led to a downgrade of the U.S. credit rating.
The Pound to Euro exchange rate is currently trading at 1.2294
The Pound to US Dollar exchange rate is currently trading at 1.6314
The Pound to Australian Dollar exchange rate is currently trading at 1.5548
The Euro to US Dollar exchange rate is currently trading at 1.3265
The Euro to Pound exchange rate is currently trading at 0.8130
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