His take:
So it is possible that we will get a
technical default for a few days, but more likely that Congress will
give in, vote the debt ceiling up temporarily, and let the automatic
sequesters kick in. Mounting risk of a technical default was USD
positive in 2011 because it led to cutting of long-risk positions and
the USD/Treasury market remained safe havens. However, it also occurred
in an environment of slowing EM growth and intensifying euro zone
sovereign risk pressure, so the USD support came from external forces as
well. Given that investors are now somewhat long risk again, the
position cutting is again likely to be USD positive, however,
unattractive US assets were. As was the case in 2011, it is very
unlikely that the Treasury will not pay its bills, although even a
technical default could have very unforeseen consequences, given the
multiple functions that Treasuries play in global financial markets. The
more likely scenario of sequester plus grudging debt ceiling rise is
USD negative. It will put more
pressure on the Fed to keep pumping liquidity into the US economy
without giving any reassurance to investors that long-term fiscal issues
are close to resolution.
That seems reasonable. A debt ceiling hike + a full sequester, which would equal a weaker economy and more pumping.With Europe healing and China rebounding, USD would be the big loser.
No comments:
Post a Comment