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Debt Ceiling Worries and Credit Downgrade Concerns Remain

08/03/11 by  
Filed under Forex & Futures

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Risk aversion sets in

Concerns about the financial situation in the U.S. are still a big part of global markets, including the currency market. Today, U.S. markets ended lower (although averting a steeper drop), and risk aversion around the world was basically non-existent by the end of the Asian session.

The euro is lower in forex trading, along with gold prices. Oil prices are also down. One of the reasons commodities are falling, and the dollar is rising, is due to the future of the economy. Even though a debt ceiling agreement has been reached, and is expected to pass Congress (it’s not final yet), there are still questions about the U.S. financial situation — especially with the huge spending cuts proposed.

A drag on the economy is expected with all of the spending cuts, and there are no tax increases in the deal to help increase revenues. That means that, even with the spending cuts, the deficit situation is still dire — possibly meaning a credit rating cut even with a higher debt ceiling. The U.S. has a number of questions to answer in the coming days and weeks. And the world might not like what it learns. 

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