- While it is highly unlikely that the US will default on its debt, this doesn’t mean that the traders won’t make plans to deal with a default or get jittery
- With the US being the bedrock of the whole world’s financial system, we might also expect to see investors’ jitters manifest in offshore-based assets too
“It is impossible to predict with certainty the exact date when Treasury will be unable to pay the government’s bills,” Treasury Secretary Janet Yellen said in a letter to Congress.
While it is highly unlikely that the US will default on its debt, this doesn’t mean that the traders won’t make plans to deal with a default or get jittery. Two likely markets that will have to deal with the moves from these investors will be forex and gold.
If uncertainties about an unprecedented potential U.S. debt default persist, the US dollar will lose some of its safe haven status which would possibly shift to gold.
US President Joe Biden plans to meet with House Democratic leader Hakeem Jeffries, Senate Majority Leader Chuck Schumer and Republican leader Mitch McConnell on May 9. This will be a key date to watch the US dollar and gold in case the group come to some kind of agreement to increase the debt ceiling.
With the US being the bedrock of the whole world’s financial system, we might also expect to see investors’ jitters manifest in offshore-based assets too. Other safe havens such as the Japanese yen, the Swiss franc, and particularly the euro might be prime candidates for inflows.
