Dollar may Plummet as Debt Ceiling Deadline nears

The dollar may plummet soon because the United States is on the verge of losing its AAA rating because politicians can't seem to come to an agreement on raising the cap on the debt ceiling. Lately, the global financial focus has been shifting from the eurozone crisis, to the one in Washington DC.

Priya Bajaj
Saturday, July 23, 2011 at 6:12 am
Forex Dice

Next week may see the US dollar plummeting on concern that the US may no more be able to pride itself on the AAA credit rating that it used to enjoy earlier with the politicians still being indecisive on an agreement on raising the cap on debt ceiling.

Now that the second rescue operation for Greece has been announced, fears of a full-scale euro zone debt crisis have settled as of now, and the focal point is now gradually shifting to Washington.

The recent weeks have seen risk appetite being dented by the long battle, leading to warnings by the credit rating agencies that there would be a potential downgrade. There is a fear in the hearts of some that such a step could cause a hike in the interest rates, alongside eroding the reserve currency status of dollar.

Friday saw complacency setting in the dollar investors with the US currency rising against the euro as well as a basket .DXY. Some sort of a deal is expected by a large number of investors to be reached till August 2 for the aversion of a default; however some still fear a cut in credit ratings due to inability to arrive at a major deficit reduction plan. Since time is gradually running out, the worry is not to subside likely.

Director of currency research in New York, Boris Schlossberg said that selling first and asking questions later would be the first instinct, provided there is nothing that the markets hear about going into the weekend.

Thursday saw the efforts for crafting a $3 trillion deficit-reduction deal gaining traction, with the deadlock over higher taxes between the Republicans and White House still in its place.

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